Thought of the week
Last week, preliminary manufacturing PMI data releases in the U.S., Europe and Japan indicated slowing developed market growth. The U.S. held up well at 53.7 (above 50=expansionary, below 50=contractionary), as seen in this week’s chart.
Europe’s manufacturing reading, on the other hand, entered contractionary territory for the first time since 2013 at 49.2. Germany was a prominent source of weakness given challenges in its auto and petrochemicals industries, although France did experience a slight rebound. Europe is not the only region experiencing a slowdown. Japan’s PMI also dipped below 50 for the first time since mid-2016. Although there are no flash PMIs for EM, final readings may reflect sluggish EM growth too. Europe and Japan have been caught in the crossfire of global trade tensions, which has likely contributed to weaker growth, as exports are 19% of eurozone GDP and 14% of Japanese GDP.
Although U.S. exports as a share of GDP are roughly half that of Europe and Japan, the U.S. is not immune to the effects of trade tensions. Unfortunately, what appears to be a divergence between U.S. and international markets may not yet reflect slowing U.S. growth, which is expected to decelerate from 3Q to 4Q in this week’s GDP release, and subsequently diminish further in 1Q. This week, we will receive final PMI prints, and we estimate total global manufacturing PMI will recede to 50.3, reflecting a significant slowdown, but not yet a stall, of DM and EM growth.
Source: JP Morgan Asset Management