US Leads Global Manufacturing Slowdown

US ISM Manufacturing PMI data came in at just 46.4 for July. Only nudging up a little from a three year low. This is deep contraction territory.

US Manufacturing PMI

US manufacturing continues to languish in and below the Covid lockdown period levels. This is when a significant proportion of manufacturing came to a standstill. To be at such levels, in the midst of a supposedly strong economy as many still pointlessly argue, is rather jaw-dropping.

We are seeing Germany in recession, Italy in contraction and China manufacturing and exports in dire straits. This is global.

Yes, we said all this yesterday too, and the latest US data only confirms our worse fears. This is a serious global manufacturing slow-down that needs to be paid attention to. This is the real economy which is the basis of the eventual ivory tower wealth manifestations. Throughout history stocks have never stayed up for long when a serious manufacturing slow-down, now recession in the world’s two largest economies, has occurred.

Manufacturing was the number one prominent warning sign ahead of the 1929 stock market crash. Again, we do not expect that, but manufacturing as boring as it may sound to new tech fanatics, is paramount to the health of the underlying economic fundamentals.

All along, I have been pointing out that this would be the valley period of the post-Covid boom and the last thing the economies of the West would be needing this year, were more rate hikes. I have explained how inflation is different this time. That central banks needed to raise rates earlier, more gently and not as high. Their errors have been severely compounded by this late run aggression. The impacts of this are now beginning to be seen ever too plainly.

Western central bank rate hikes on top of extreme inflation, on top of a serious slowing in any case, is simply too much for these economies to cope with. The cracks, fractures, are happening thick and fast now.

This slow down we called loud and clear very early. It is not a surprise to us, but it will begin to weigh on investors minds more and more. Even the big funds must now begin to pay attention.

What more can one say about a sustained global manufacturing slow down. It is scary, because it means real demand is dropping off a cliff. This shows up plainly in services too. The flow through to retail sales and business activity will become increasingly apparent in the months ahead.

Consumers and businesses are winding back to spending only what they have to. This process is young, but already clearly telegraphed by manufacturing. The retrenchment of consumers and businesses across the world’s three major economic regions, the USA, EU and China may only be just beginning. This wingback of activity has further to run.

This is the stretch now, for an equity market that continues fail to kick on after the Fed’s last rate hike. The immediate price action continues to ring alarms. The economic data continues o point to a more serious global slow down than most are anticipating.

The addition of such inputs leaves this writer with a negative outcome for stock prices from what are still elevated levels.

The big hedge funds are finally catching on to our view of these processes and their increased caution will do nothing to help markets.

If I am wrong, and we break above last week’s stock highs, there is hope. For the moment, I suggest maintaining an immediate spotlight approach to the risks and opportunities fast evolving here.

Clifford BennettACY Securities Chief Economist

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

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