Manufacturing Recession Goes Global as Demand Withers

The “strong dollar” has been blamed for the manufacturing doldrums in the US that started over a year ago. But then manufacturing in other countries should boom, or at least not decline, but that’s not the case. Manufacturing is sick and weakening in just about every major economy!

References to 2009 and the Global Financial Crisis keep popping up in the latest spate of reports because that’s how bad it has gotten.

US manufacturing gets ugly.

On Monday, Markit reported that its US Manufacturing PMI, which tracks the overall health of the manufacturing sector via surveys sent to purchasing managers, dropped to 50.5 (below 50 = contraction) in May, the weakest reading since October 2009.

Production actually declined for the first time since September 2009, “the height of the Global Financial Crisis.” Companies blamed “reduced foreign demand” as new export orders fell for the second month in a row. And they blamed the “uncertainty around the general economic outlook” which had caused their customers “to delay spending decisions,” which then triggered production cuts.

Backlog of work fell for the fourth month in a row, at the same rate as in April, which had been a “post-recession record,” which means that companies “will be poised to cut capacity unless inflows of new work start to pick up again.”

The report summarized it this way: “The weak manufacturing PMI data cast doubt on the ability of the US economy to rebound from its disappointing start to the year in the second quarter.”

Then Japan hit the world with its collapsing trade figures.

Exports plunged 10.1% in April from a year ago, on weakness in China and other emerging markets, as Japan’s Ministry of Finance reported on Monday. Imports plummeted 23% on lower commodity prices and weak demand at home, despite (or because of) the Bank of Japan’s reckless scorched-earth monetary double whammy of QQE and negative interest rates.

So it fits in nicely that the Nikkei Japan Manufacturing PMI, also released on Monday, dropped to 47.6 (below 50 = contraction), with the output index plunging to 46.9, the sharpest decline in 25 months.

The new orders index, a harbinger for future business, dropped to 44.1, the sharpest decline in 41 months. Turns out, one of the primary reasons for the drop wasn’t the April earthquake, but “a marked contraction in foreign demand, which saw the sharpest fall in over three years.”

Overall, Japanese companies experienced the “sharpest decline in operating conditions since December 2012,” which was when Abenomics became the new economic religion of the land.

And the Eurozone chimed in.

The Markit Eurozone Manufacturing PMI for May edged down to 51.5, so still an expansion, but barely, and thus the cleanest dirty shirt. The rate of output growth was the second weakest in 15 months. Growth of new orders dropped as well.

“Domestic market conditions remained tough and softer international trade flows led to the smallest rise in new export business in 16 months,” the report said, and growth is “more likely to weaken further than accelerate.”

On top of the debacles in China, Russia, and Brazil.

In early May, the Caixin China Manufacturing PMI for April dropped to 49.4 (below 50 = contraction):

All of the index’s categories indicated conditions worsened month-on-month, with output slipping back below the 50-point neutral level. The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out.

New orders “stagnated” and export orders dropped for the fifth consecutive month. Weak demand “contributed to a further solid decline in staff numbers,” even as “inflationary pressures intensified across the sector,” with input and output prices rising, the latter at the sharpest rate since October 2011:

Latest data indicated that weaker foreign demand continued to weigh on overall new orders, with new export work falling for the fifth month running.

Some companies continued to downsize, “while others chose not to replace voluntary leavers,” and overall employment fell again, “with the rate of job shedding only fractionally slower than February’s post-Global Financial Crisis record.”

Also in early May, the Brazil Manufacturing PMI for April indicated that the country would remain stuck for a while longer in its worst recession in decades: the index plunged to 42.6 to the lowest level since the Global Financial Crisis.

The downturn in purchasing activity “was the quickest in 85 months.” Companies shed jobs at a “record pace amid worsening operating conditions.” Inflation reached a “93-month high.” Incoming new work fell for the 15th month in a row, at the “second fastest pace since March 2009.” And “there is little sign of a rebound.”

Manufacturing in Russia, which has been in a steep recession since the beginning of 2015, continues to get uglier. The latest Russia Manufacturing PMI, released on April 29, fell to 48.0 in April, an eight month low and “pointed at an intensifying downturn in the goods-producing sector of Russia.”

Production plunged at the fastest rate since May 2009, the depth of the Global Financial Crisis, with all subsectors reporting a drop. Backlog of work was being depleted. Companies shed employees for the 34th month in a row, and price pressures continued.

Incoming new orders got hit by a “broad-based” decline. The report blamed “foreign demand” in particular. And “there was evidence that falling new orders reflected a lack of liquidity among customers.” So they’re running out of money.

The fact that just about all major economies are experiencing a manufacturing slowdown, or even a prolonged recession, and in a few cases something closer to a manufacturing depression, shows that the American problem with manufacturing isn’t the “strong dollar,” but crummy global demand for manufactured goods that is now hammering all major economies.

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  29 comments for “Manufacturing Recession Goes Global as Demand Withers

  1. Chung says:

    And the Fed will hike rates in June! You wanna buy a bridge?

  2. Agnes says:

    I suppose that people in other countries are also trying to pay off debt. Paying off debt in a non-commodity backed fiat currency world= deflation(the credit is quenched). But some people feel good about paying off debt so it is not all bad feelings. A money-saving radio guy just made it to the top 5(I admit ignorance as to how they measure this metric)in radio, and I heard two greek girls (as in sororities) in the used clothing store saying how chic it was to save money and get good value(I bought a pair of sturdy sandles to dig up plants at work with as I did not want to ruin my 125$ Birkies)(they were 6$)(but Orange).

    Sovereign consumers may have decided to snap shut their coin purses and reassess their budgets. It might be interesting to know if Old Mainline Charities are feeling it as much as Central Planners.

    • Petunia says:

      I go to the thrift stores a few times a year and the demographics have definitely changed. It used to be retirees and immigrants(of all ages). Now it is everybody, especially millennials. The parking lot is full of nice cars.

      • polecat says:

        Welcome to garage sale nation……..

      • Enquiring Mind says:

        In the 1990s we experienced the China Price and how that undercut domestic producers while boosting traffic at WalMart, for example. The China Price impact set an effective cap on retail goods pricing. Who could charge more when the stores were full of cheaper items, after all.

        There has been an analogous move at least since the troubles in 2008 to set a type of buyer ceiling price. Call it the Mexican Price (or something more PC, if you prefer). The idea is that price is the one that a shopper with limited means is willing to pay for the intrinsic private value of some good or service, not the desired or social value to an aspirational peer group.

        You may observe the Mexican Price in action by visiting any dollar store. Look at the goods offered, and then compare the often identical items and their prices at conventional retailers, or even online retailers. Those dollar stores may be dealing in liquidation items, overruns and other odd-lot purchases, so not quite comparable to conventional retailers in various ways. Nonetheless, their mere existence, and the traffic through their stores, would seem to indicate that more people are willing to patronize such stores because they don’t see evidence of value added elsewhere. Those trends may be in theory somewhat counter-cyclical, but the practical impact with lower workforce participation and fewer middle class jobs has been to strip away the Potemkin-like veneer of value added in what has become much more of a bi-modal market.

        That is some creative destruction, although where is the upside for the average person? If some critical mass of shoppers abandons conventional retail, then would the result be air coming out of prices, stocks, loans and supply chains? That was one of the aspects of the Depression that nobody really wants to revisit.

        • Petunia says:

          I was solidly in the middle class up until 2008 when the bottom fell out for us. Until then most of my discount shopping experience was at the outlet mall.

          Dollar store shopping became a necessity for us in 2008 when we were selling our belongings to buy toilet paper and groceries. It was all about price and utility. We didn’t have the luxury of being picky about the soap or the vegetables. We simply needed soap and vegetables. At no point was it about the value added or subtracted from the product. It was only about the basic utility.

          There are two themes in retail now, what you call the bi-modal market. One theme is the idea of utility of an item. Do I need it, will I use it. This theme dominates the low end. It is extremely price sensitive.

          The other theme is extreme exclusivity due to price. This theme is now dominating the high end of retailing. Before 2008, it was possible for a middle class housewife, like me, to afford high end cosmetics and even a designer handbag. Now high end handbags cost $10K and the upscale face cream is $500. These items are being deliberately priced to exclude everybody but the rich. There is no added value in any of these products. They are simply selling exclusivity.

          This division is playing out and hollowing out the middle market. That’s why Nordstoms and Neiman Marcus are in trouble. The fallacy of luxury, is that you are still buying items made in China (Asia), regardless of the price. There really is no middle market anymore. You buy the cheap stuff or you wait for the more expensive stuff to land up in the discount store. Quality and craftsmanship have been discarded and we are all suffering the consequences of a low wage low price economy.

    • OutLookingIn says:

      Paying down debt is deflation.

      The latest from EQUIFAX on all general-purpose credit cards:

      Number of new cards issued 60 million for full year (2015)
      Quarterly outstanding balances at $951.6 billion
      This will not end well as in 2008

      • OutLookingIn says:


        Total Household Debt:

        Q3 2008 Peak @ $12.68 Trillion
        Q1 2016 @ $12.25 Trillion

        Just 3.3% below the 2008 peak. Household debt deleveraging has not continued its downward trend since 2011. It has been slowly trending upward since.
        Those who claim consumer deleveraging for the poor retail numbers are wrong. Debt is being used to offset higher costs of living; eg: Health care, rent, food, energy.

  3. bud says:

    It does not matter if it is a tractor or and iphone, cold rolled steal, new plasma TV, or a container ship, when the buyer feels the earth beneath his feet as unsteady as the ‘give way’ sliding of pebbles on the mountain side in California, he must protect the foundations of his existence. Be it personal or business, when ‘confidence’ runs and hides it is gut feelings that have taken hold not fantasy imaginary data points tossed about by governments and the media. Baseline is a wreck less credit expansion by the central banks and a race to the cheapest currency for trade by governments.

    A pattern to spend, not invest or save, has been broken, and “less is more” is…… the new confidence. “Doing without” is here to stay for sometime and businesses are just feeling the beginnings whether they are brick and mortar or the web.

    Poor management, a disconnect from those you serve, and the wreck less gamblers sprit are coming home to roost on the shoulders of industry and government.

    The idea of “ONE WORLD” is not working, local has always been healthier.

    • Petunia says:

      People spend more because the quality is no longer there in the merchandise they buy. Last year we purchased a barbecue grill, the smallest cheapest one we could find. It was a brand name, made in China, and we did use it several times a week. It broke, within a year, and was too expensive to repair.

      In the old days things lasted forever, not anymore. We were lucky to catch a good sale to replace it with, but we don’t expect it to last either. BTW, a can of gas was $50, why?

      • frederick says:

        Why because they could get it thats why Why was İ paying almost 5 dollars a gallon for 100 gallon deliveries of propane in 2014 in the hamptons while it was selling for around 3 bucks a gallon in upstate NY? Because they could get it thats why İ know its unfair but TPTB couldnt care less whats fair

  4. ERG says:

    Yet the price of oil has been rising and is near $50/bbl?

    That makes no sense.

    A global manufacturing recession and a rising price of oil don’t go together.

    • Paulo says:

      Bud and ERG

      Great comment Bud, or at least I totally agree with it. My folks were children in and of the Depression. They also both served their countries overseas in WW2. They had some very tough years in their life. I can remember my folks, even though they were quite successful and well off later in life, always buying day old bread and never ever throwing food away. It just wasn’t done and my own house has emulated that as well. I also had some tough years off and on with small kids and a stay-at-home spouse. I am now 60 and doing just fine. Nevertheless, I have six years of heat cut split and stacked in the woodsheds and freezers full of food with gardens producing more. I’ll freely give money where necessary, but seldom buy anything beyond what I absolutely need.

      As for oil price volatility, the so-called glut is a result of production exceeeding demand by about 1.4 million barrels per day. Call it 2%. It is enough to create a bust in the Industry and companies are going broke all over the world. Consumption (of this finite resource) is at 8X the rate of new discoveries. The cheap stuff has mostly been burned and even Saudi Arabia is looking to diversify as they also run out of cash.

      A price rise in oil seems pretty logical to me, and the industry, itself, will continue to follow the decline of industrial civilization downwards as people are required to try and live with less, and rising debt levels stop the charade/myth of wealth for everyone as a matter of birthright.

      As my favourite customer used to say, “It isn’t what you own, it’s what you have paid for that counts”. Even the entitled modern class is starting to figure that one out.


    • Kasadour says:

      It makes perfect sense if the FED is intervening in the oil markets. How would we even know? It has the motive, the means and isn’t accountable to anyone.

  5. Bruce says:

    1) The weak, debt-fueled economic expansion that began after the meltdown in ’09 is running on fumes. Instead of DE-leveraging, both the public and private sectors have RE-leveraged and we’ve now again reached peak debt.

    2) Despite the myth that central banks can prevent the economic cycle, the contraction phase is once again asserting itself after the preceding (weak) expansion. CB easy money and interventionist policies only serve to exaggerate the peaks and valleys, however with a downward bias due to debt saturation. Read lower peaks and more severe recessions. Of course when the recession hits in full force the CBs will again announce “they never saw it coming”, or some other ridiculous tripe.

    “Insanity: doing the same thing over and over again and expecting different results.” – Albert Einstein (misattributed) – Narcotics Anonymous
    (How apropos, since debt=financial heroin.)

    “You cannot spend your way out of recession or borrow your way out of debt.” – Daniel Hannan, Member of the European Parliament

    “Sooner or later everyone sits down to a banquet of consequences.” – Robert Louis Stevenson

    • Bruce says:

      Make that “preceding”. I haven’t had my coffee yet. :)

    • John Doyle says:

      You most certainly CAN spend your way out of recession. It is in fact the only solution, short of winning lotto or finding a gold mine. Borrowing your way out of debt is trickier, but that’s what’s happening across the financial world for some time. They just change the wording, fudge the figures etc.
      Then we WILL sit down to the banquet of consequences.

  6. Ptb says:

    Can the world go into a recession and still have the US stock market rise? Or other assets?

    • d says:


      You are another who seem’s to think the 08 recession ended.

      All QE did was push out the inevitable and unpreventable Real Double Dip.

      QE II and III were multipliers, as they went into the financial markets. (the Second leg down, now, will be larger than it otherwise would have been due to the Mal-investment of QE II and III)

      QE II and III, should have gone into the Bottom of the economy as infrastructure stimulation (which is easy to say in 20/20 hindsight, but I have been saying it since QE II was announced).

      But O bummer. Was more interested in O bummer phones for his boy’s (To do their drug deals on), and putting daylight between Israel and America.

      Than he was fixing the economy, when he could have.

      Now we are entering a normal 7 (APP) Year correction cycle, inside a Major depression recession event, that has been in play since 08.

      As long as the bank’s and the Corporates can retain their supply of FED QE direct or indirect $ they can keep funding buyback’s and pushing up the market.

      If you actually read some of the content here and in other places, all that is holding and pushing up the market (Dow, S&P) is buyback’s. The money funding them, is still effectively QE excess cash, looking for a place to hide.

      The only people and small business, US and Euro bank’s will lend to, have no use for the money.

      Unlike the Japanese in the late 80’s early 90’s. The US and Euro bank’s, can not (as yet), talk them into borrowing anything. Let alone more than they need, to buy or build, what they dont need.

      Yes that is what retail lenders in Japan, did, then.

      This is why the Japanese Economy will not move. The NPL Issue is not just in Big Business. The Japanese loaded Mainstrett as well.

      Japanese interest rates which are historically low anyway by global standard’s. Will stay that way until the holders of those 80’s/90’s loans die then they will be wound up in Estate settlement resolutions, not publicly, painful, and suicide generating. Bankruptcy’s.

      And the Japanese bank’s will not have to Publicly write of Masses of Mainstreet NPL’S, Publicly, in large tranches.

      Everbody saves Face.

      The Number of Japanese Mainstreet NPL’S that were converted to Minimum interest only for life, is hidden, and HUGE.

  7. NotSoSure says:

    Well perhaps US manufacturing is not indicative or anything. Muricans bought the most number of new homes in 8 years:

    Looks like a strong economy to me :)

    • Petunia says:

      In my area, many of the sales are investment properties. We now rent from a small investor in multiple properties. While looking for a rental, we came across mostly average professionals as the owners.

    • V says:

      yeah, hedge funds are buying homes and apartment complexes. A hedge fund bought my employer last year and my employer has over 6,000 employees catering to the temp labor market. The numbers are very deceptive even though they may depict the truth statistically. Rents are going up because of housing prices going up… I don’t know anyone talking about their awesome pay increases and I know a lot of people. Others I know have bought houses with prices 4 times their income … the ‘old’ standard was 2 times annual income.

  8. OutLookingIn says:

    the flip side of low manufacturing numbers

    exports down 10% in Q1 2016
    imports down 13.3%
    exports down 11.2%
    marks 16 consecutive months of decline
    exports down 14%
    Hong Kong;
    exports down 11%
    exports down 19%
    exports down 21%
    exports down 24%

    • OutLookingIn says:

      Shrinking demand is indicative of an unfolding deflation.
      Not a return of boom times.

  9. bead says:

    No Fed hike in June, the secret is out and stawks is going wild!

  10. josap says:

    Many of our friends in the 50 to 65 age group are deleveraging as fast as possible. They are also decluttering in a big way.

    We have already paid for the house and cars, the decluttering of Hubby’s stuff still has a ways to go. The funny part is , as he tries to give things to friends they don’t want any more stuff.

    • frederick says:

      im 61 and got rid of my moneypit house in 2014 and had a yard sale and shipped the stuff İ still wanted or needed to my new country of Turkey and living happily on the Aegean coast with my wife No signs of İSİS here yet but if i see any İ will let youall know

  11. ML says:

    Too much is free. Once upon a time, an experience cost, you had to buy something. Now the satisfaction can be gotten for nothing. Smart phone, cheap apps, play around to your heart’s content. Blame the Facebook generation. Ok, you become fodder for advertisers but you don’t have to buy anything, instead look at all you get for next to nothing.

Comments are closed.