Die Another Day: Can the Global Economy Keep Going?

December 9, 2015 Facebook Twitter LinkedIn Google+ Economic News

December 9, 2015

It’s becoming increasingly difficult to make sense of the conflicting signals coming in about the state of the global economy. Last week a solid U.S. jobs report coincided with the worst manufacturing survey in years .

Outside the United States, the outlook is even murkier: Many of China’s leading indicators are hitting multi-year lows, but the European economy is showing surprising resilience, as data accessible via Bloomberg show. It’s no wonder, then, that going into 2016, perhaps the biggest question for investors is: “Will the global economy improve, stabilize or slip into another recession?” My take: For now, at the aggregate level, global growth looks steady, albeit slow, and the outlook for the U.S. economy is similar.

The Global Investing Landscape

Starting at the global level, a good deal of investor concern is rightly focused on China. Not only is the Chinese economy slowing, but everyone appreciates that Chinese economic data leave room for a healthy degree of skepticism. Adding to the angst, the slowdown isn’t limited to China. Other emerging markets, notably Russia and Brazil, are already suffering contractions. There’s a justifiable fear that the problems in emerging markets are simply a precursor to a broader global slowdown. In my view, while 2015 will likely turn out to be an uninspiring year, with global growth close to 3 percent, there are few signs of an imminent recession. It’s true that many cyclical commodities, such as copper and iron ore, are deep in a bear market, normally a warning sign for the global economy. However, the collapse in commodity prices  is primarily a function of oversupply and a shift in the composition of Chinese growth. Outside of commodity prices, most global indicators and surveys are still in expansion territory, with services sectors generally doing better than manufacturing ones.

The U.S. Economy

Looking more closely at the United States, this trend is evident. The U.S. manufacturing sector is clearly struggling under the weight of the emerging market slowdown, a strong dollar and the collapse in energy- and natural resource-related activity. According to Bloomberg, the ISM manufacturing survey  fell to 48.6 in November, the survey’s first reading below 50 since late 2012. Other manufacturing surveys also suggest that this segment of the economy is suffering a mild contraction. However, broader measures of the economy are more robust. The ISM non-manufacturing survey has also fallen, but it remains at a relatively healthy 55.9. Other measures, such as the Chicago Fed National Activity Index ( CFNAI ), are at a level consistent with 2.5 percent, or slightly better, growth.