{"id":8896,"date":"2019-10-01T23:21:38","date_gmt":"2019-10-01T23:21:38","guid":{"rendered":"https:\/\/lavozlit.com\/?p=8896"},"modified":"2019-10-01T23:21:38","modified_gmt":"2019-10-01T23:21:38","slug":"a-global-manufacturing-recession","status":"publish","type":"post","link":"https:\/\/workersvoiceus.org\/es\/2019\/10\/01\/a-global-manufacturing-recession\/","title":{"rendered":"A Global Manufacturing Recession"},"content":{"rendered":"
\n

As we enter October, the global recession is with us \u2013 in manufacturing.\u00a0 The PMI manufacturing activity indexes for most of the major economies are below 50, the threshold for expansion or contraction.\u00a0 These are only surveys of corporate managers asking them about production, sales, employment etc.\u00a0 But PMIs have been reasonably accurate indicators of actual industrial and manufacturing output, the data for which follow somewhat later.<\/em><\/h2>\n

By Michael Roberts,\u00a0 Reposted from here<\/a>
\n<\/strong><\/em><\/p>\n

\nIn September, the manufacturing PMI for the Eurozone fell to its lowest level since the euro debt crisis of 2012, led by Germany but followed by the others.\u00a0 So much for the success of Mario Draghi\u2019s reign as ECB President.
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\nIn Japan, it is a similar story.\u00a0 Sentiment among Japan\u2019s large manufacturers fell to its lowest level in more than six years in the third quarter, according to a key survey conducted by the Bank of Japan.\u00a0 And Japan\u2019s manufacturing PMI is back to the level of contraction in the sector last seen in the mini-recession of 2016.
\nJapan manufacturing PMI<\/u>
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\nEven in the US, the manufacturing recession has arrived.\u00a0 The Markit manufacturing PMI is hovering just above 50, but that is a lower level than in 2016.\u00a0 And the US ISM manufacturing PMI in September fell to its lowest level since the Great Recession in 2009.
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\nAnd of course, pre-Brexit Britain\u2019s manufacturing sector has already been \u2018in a ditch\u2019, to use PM Boris Johnson\u2019s phrase, for several months.
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\nTo complete the G7, Canada\u2019s PMI is also below 50.
\nAnd it is not just the G7 manufacturing sector that is contracting.\u00a0 The following countries are recording contractions in manufacturing activity:\u00a0 Malaysia, Mexico, New Zealand, Poland, Russia, Singapore, South Africa, South Korea, Sweden, Switzerland, Turkey, Taiwan
\nAnd the following countries have an outright year on year fall in actual manufacturing output: Australia, Brazil, Canada, Chile, France, Germany, Greece, Italy, Japan, Netherlands, Portugal, South Korea, Turkey, the UK, and also the US.
\nAnd as for the fastest growing major economies in the world, China and India, they are both experiencing their slowest real GDP growth rates for over a decade, while their manufacturing sectors are just above the water line.
\nThe slump in manufacturing is partly the result of general slowdown in investment by capitalist economies and partly the result of the intensifying trade war between the world\u2019s two largest manufacturing economies: China and the US.\u00a0\u00a0The trade war is acting as a trigger for a recession in manufacturing across the globe.<\/a>\u00a0\u00a0Global trade was already slowing down before the trade war broke out and it had already led to casualties globally: for example, Argentina and Turkey.<\/a>
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\nBoth have seen a catastrophic collapse in production, foreign investment and in the value of their currencies.\u00a0 Turkey has been thrown in a deep overall recession.\u00a0 Argentina has been forced to default on its huge foreign debt payments.\u00a0 As the country heads to a general election this month,\u00a0bond holders are desperately trying to find ways of avoiding a severe \u2018haircut\u2019 on their holdings.\u00a0\u00a0<\/a>
\nBut so far, the recession is limited to the manufacturing sector.\u00a0 And manufacturing constitutes no more than 10-40% of most economies. The so-called services sector that includes retail, financial services, business services, real estate, tourism, \u2018creative industries\u2019, etc continues to keep its head above the water in most G20 economies.\u00a0 There is not one G20 economy with a services PMI below 50.
\nAnd this why an economy like Greece, which was devastated in the global recession and euro debt crisis, is now able to report a modest 2% a year growth in GDP.\u00a0 Tourism and leisure services, a key component of the Greek economy, continues to expand.\u00a0 But a 2% growth rate is not much after a 25% contraction during the crisis.\u00a0 The Greek recovery has been weak. Five years after the 1933 nadir of the Depression, US GDP per capita had risen by 35 per cent. Five years after the depths of Argentina\u2019s 1998-2002 crash, GDP per capita was up by 45 per cent. But from 2013 to 2018, Greece\u2019s GDP per capita rose by less than 6 per cent. Indeed, Oxford Economics predicts Greece won\u2019t recover to its pre-crisis GDP levels until 2033! \u2013 and that assumes no global slump in the meantime. \u00a0And if the global services sector hits the wall, then Greece will plunge back into recession.
\nThe question is whether the services sector will follow the manufacturing down into a slump.\u00a0 Some say not because manufacturing is a much smaller sector.
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\nBut that argument does not recognise that many services sectors depend on manufacturing for their own expansion.\u00a0 The spillover from a manufacturing slump has usually been significant in previous recessions.\u00a0 If global employment growth should weaken or stop, workers\u2019 purchasing power will wane and the services sector will start to suffer as well.\u00a0 Employment depends on the willingness of capitalist companies to invest and expand.\u00a0 And investment and expansion depend on the profitability of expected investment.\u00a0 Capitalists gauge that by current profitability \u2013 unless they take a risk.
\nSo what is happening to global profits?\u00a0 Well, JP Morgan economists have just published a full analysis of global profits (unfortunately this report is not available to the public).\u00a0 And they reckon that global profits in Q2 2019 have stalled. Each of the 10 sectors comprising the total market show a sharp slowing in profit growth, with half experiencing outright contractions in profits over the past year (particularly materials and telecoms).\u00a0 Even those sectors that still have positive profits growth: retail, IT, financials and utilities, profits growth is dropping fast.
\nJPM reach the \u2018surprising\u2019 observation (that Marxist theory and previous empirical evidence could have told them) that\u00a0\u201cthe downshift in global growth over the past year has coincided with an equally impressive deceleration in corporate profits.\u201d<\/em>
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\nThe stagnation in corporate profits globally is still not as bad as the 2016 mini-recession, or of course in the Great Recession or the previous slump of 2001-2, but it is getting there.\u00a0 In particular, JPM notes that profits growth has declined to zero because profit margins are being squeezed \u2013 in other words, the costs of labour (more workers and higher wages) are not being compensated by increased value \u2013 the rate of surplus value is falling \u2013 a result that JPMorgan reckon\u00a0\u201chas historically preceded the start of recession dynamics.\u201d<\/em>
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\nJPM Morgan cites the trade war as the trigger for this and makes the point that business sentiment (the PMIs) are falling in manufacturing because of the profits squeeze, not vice versa.\u00a0 But the trade war\u00a0\u201ccould also be an ominous portent of weaker earnings yet to come.\u201d<\/em>
\nAs Marxist theory would predict, slowing or falling profits will eventually mean slowing or falling business investment, and JP Morgan agrees.\u00a0\u201cThe slump in business profits and business sentiment is taking a toll on capital expenditures. Global capex growth has slowed substantially from a six-year high in 2017 to a near stall as of 2H19. It likely also is a contributing factor in the more recent<\/em>\u00a0pullback in job growth. The risk is that slowing labor income growth weighs on consumer spending, which then feeds back into business earnings and hiring.\u201d<\/em>\u00a0 Exactly.
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\nJPM remain optimistic that rising productivity growth will turn things around.\u00a0 But that seems wishful thinking if investment keeps falling.
\nIn the past I have highlighted some other key indicators (apart from profits) that can predict a coming outright recession. The most famous one is the so-called inverted yield curve on bonds.\u00a0\u00a0I have explained how that operates in a previous post.\u00a0<\/a>Suffice it to say now, that when the yield curve on bonds inverts (and yield on longer maturity bonds fall below yields on short-term bonds) and stays inverted, then a recession follows within a year.\u00a0 The US curve has stayed inverted since May.
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\nAnother indicator is the price of industrial metals, particularly copper, a metal that is used across the board in all sorts of production.\u00a0 A fall in its price would indicate a slowdown in investment and production in many industries.\u00a0 In the mini-recession of 2016, the copper price fell to about $200\/lb.\u00a0 In the Great Recession, it fell to $150\/lb.\u00a0 Having risen to $320\/lb in early 2018, it has now fallen back to $250\/lb.
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\nThe world capitalist economy is in a manufacturing recession now, but there are important indicators that the rest of the economy will join manufacturing soon.\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

As we enter October, the global recession is with us \u2013 in manufacturing.\u00a0 The PMI manufacturing activity indexes for most of the major economies are below 50, the threshold for expansion or contraction.\u00a0 These are only surveys of corporate managers asking them about production, sales, employment etc.\u00a0 But PMIs have been reasonably accurate indicators of […]<\/p>\n","protected":false},"author":13882120,"featured_media":8901,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false,"jetpack_post_was_ever_published":false},"categories":[27671],"tags":[29961,29963,29962,29964,29965,29966],"class_list":["post-8896","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized-en","tag-economy","tag-global","tag-global-recession","tag-manufacturing","tag-recession","tag-world-economic-crisis"],"translation":{"provider":"WPGlobus","version":"3.0.2","language":"es","enabled_languages":["en","es"],"languages":{"en":{"title":true,"content":true,"excerpt":false},"es":{"title":false,"content":false,"excerpt":false}}},"aioseo_notices":[],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_likes_enabled":true,"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/pdQxqk-2ju","amp_enabled":true,"_links":{"self":[{"href":"https:\/\/workersvoiceus.org\/es\/wp-json\/wp\/v2\/posts\/8896","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/workersvoiceus.org\/es\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/workersvoiceus.org\/es\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/workersvoiceus.org\/es\/wp-json\/wp\/v2\/users\/13882120"}],"replies":[{"embeddable":true,"href":"https:\/\/workersvoiceus.org\/es\/wp-json\/wp\/v2\/comments?post=8896"}],"version-history":[{"count":0,"href":"https:\/\/workersvoiceus.org\/es\/wp-json\/wp\/v2\/posts\/8896\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/workersvoiceus.org\/es\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/workersvoiceus.org\/es\/wp-json\/wp\/v2\/media?parent=8896"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/workersvoiceus.org\/es\/wp-json\/wp\/v2\/categories?post=8896"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/workersvoiceus.org\/es\/wp-json\/wp\/v2\/tags?post=8896"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}