How great was the global economy in the first quarter?
We know the US economy was crummy. The revised GDP estimate will likely sink into red mire. Hence the heated proposals these days, including at the Fed, to apply “a second round of seasonal adjustment” that would “correct” the first-quarter GDP estimate, no matter how bad, into positive territory. An elegant way of covering up an unsightly sore.
So was it just a crummy quarter in the US, or was it a global thing, in which case we might have to apply a “second round of” whatever to adjust the global downturn out of the picture?
Because here is the thing: in the first quarter, one of the crucial measures of the global economy – global trade – slumped the most since the Financial Crisis. But ironically, it wasn’t because of the USA.
The CPB Netherlands Bureau for Economic Policy Analysis, a division of the Ministry of Economic Affairs, just released its latest Merchandise World Trade Monitor, which covers global import volumes as well as global export volumes. The index dropped 0.1% in March to 136.5, after having already dropped 0.7% in February, and 1.7% in January. The index, which was set at 100 in 2005, is now down 2.5% from the peak of 140.0 in December. That 3.5-point decline was the sharpest since the Financial Crisis.
This chart, going back to January 2012, doesn’t exactly inspire confidence in the current state of the global economy:
To mitigate the volatility of these kinds of monthly numbers, the CPB offers a measure of trade volume “momentum,” which it defines as “the change in the three months average up to the report month relative to the average of the preceding three months.”
That trade momentum measure slumped 1.5% in March, the largest monthly decline since April 2011, after having edged down 0.4% in February. It now amounts to the most negative “momentum” since the Financial Crisis.
This chart, going back to 2010, looks even worse than the prior chart. This sort of thing isn’t supposed to happen in an expanding, or even a stagnating, global economy:
Both of the measures above involve import and export volumes. With volumes now actually declining and with new shipping capacity coming on line throughout the period, pricing per unit, in dollars, has plunged 15% since June 2014, and nearly 20% since the peak in March 2011. It’s now at the lowest level since May 2009:
But the trade debacle wasn’t spread evenly. For March, the CPB reported:
A positive turnaround occurred in both import and export growth in advanced economies. Imports bounced back strongly in the United States. They contracted deeply in Japan however. In emerging economies, import growth accelerated, but export growth became heavily negative on account of a deep fall in emerging Asia’s exports.
And that would be mostly China.
Hard-landing gurus have been predicting an imminent end of the China bubble for years. But there was no hard landing, or a soft landing, or any landing for that matter. China just kept on flying, fueled by an enormous credit bubble and monetary propellants. But now it’s running out of air. Read… China Momentum Indicator Plunges to “Hard Landing” Level
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Just got back from shopping the Memorial Day sale. The local mall anchored by an electronics and housewares chain store was dead. If I didn’t need to go I wouldn’t have bothered.
“And that would be mostly China. Hard-landing gurus have been predicting an imminent end of the China bubble for years. But there was no hard landing, or a soft landing, or any landing for that matter. China just kept on flying, fueled by an enormous credit bubble and monetary propellants. But now it’s running out of air.”
Indeed as China’s woes may all be rearing its ugly heads back to back.
The mfg growth engines are petering out largely due to double digit wage increases largely due to 1-child policies and many older migrant workers returning home. DongGuan near HK border used to be THE gritty factory towns all over but lot of garment, shoes and electronics factories are closed or moved inland. Furniture industry is overbuilt and struggling too. Many small to medium sized local and foreign (Taiwanese, etc) are bailing out in droves unable to make money and what’s worse is that they are forced to resort to borrowing working capitals local loan sharks AKA shadow banking to get by with 20% interest rate.
And there are so many ghost cities sucker lemmings are willing to buy as parking place of their wealth. Most of the new flats remained empty as flats in China are bare shell with just front door with unfinished interiors (i.e. even no bathtubs and toilets, doors, lighting, sink, etc). Oh yeah there is classic econ theory called supply & demand and lest we forget the greater fool theory. Some developers are going belly up signaling the end of the bubble of sort. All HELL will break loose since most flat purchases are cash or 50% down and the lemmings learned the Pavlog dog concept of that flats only go up.
Local governments or as corrupt as they can commie comrades chalked up lot of debt while building new taj mahal city halls.
As for CAPEX fueled by cheap money – China has done a dandy job building one too many steel mills, cement, aluminum, high speed train (unbelievable debt loads and most corrupt), express ways and bridges to no-where. Yep they build them fast cheating on codes and materials (i.e., sadly most building/schools collapse in Sichuan earthquake were due to lack of rebars).
Lastly the stock market bubble mania where even those with small savings (not enough to buy a flat) and classic taxi drivers with stock tips…
Yep it’s gonna end well…
Major economic deterioration began mid 2014, I have so many anecdotal examples of it, but now have another data point to prove it.
I still believe the long term trend will be slow growth in global manufacturing.
There are many other emerging countries with big populations that are slowly modernizing and they need products to buy.
The countries with rapidly aging populations will be downsizing at the same time. Retirement forces people to scale down and I see that where I am. People buying or renting apt size condos. With every move everything is scaled back. The west as well as Japan are in scale back mode.
So, all those unemployed people, and the underemployed – who work multiple part-time minimum-wage no-benefit jobs – don’t have the disposable incomes to buy extraneous made-in-China consumer crap, to keep up the pretense that there was a ‘recovery’?
Shocking.
China has been the only real engine of growth in the world economy and now China’s economy is stalling. One does not have to have a crystal ball here. China has no other option than to do whatever it can to stimulate its economy. China has already tried to increase liquidity by renewing loans and initiating new loans to anyone who will take the money. The ability to repay is not a requisite.
But so far China is finding the task much harder than before because there is hardly any demand for this liquidity. Its hard to believe that there could be a shortage of takers for corrupt deals. But China can’t clamp down on corruption and mete out harsh penalties and then be surprised that those penalties have put a damper on corruption. If China is lucky it will get enough demand to provide some lift to its economy for only about 3 months – through August.
The allocation of 1.13 trillion yuan ($185.8 billion) for upgrading internet infrastructure, 124.3 billion yuan fund for affordable housing and 250 billion yuan for six new rail lines appears on the surface like it should give China’s economy a big enough boost. It would if there was sufficient if enough demand. There is not.
Going into September China should experience a slow down or possibly drop off a cliff.
Singapore which I think is serves as a good canary in the coal mine, grows more than expected: https://sg.finance.yahoo.com/news/singapore-s-economy-expanded-more-than-estimated-last-quarter-001701412.html.
I think things will start going down if Singapore starts going slow and/or Apple starts doing poorly. Unless there’s an external shock obviously.
Like Petunia I hit a Memorial Day sale at Dollar General in Oklahoma. Didn’t exactly have to fight my way through the store. They have been selling twin blade razors recently and including the handles, which I haven’t been able to buy for years. I was down to just one Trac II handle when I discovered these, and the new handles work on the old blades. They only stock about 3 sets at any one store, so I’ve been accumulating them over several stores. They were having a 50% of sale on clearance items, mostly Chinese crap I have no use for, but I found a few items I needed, including a lone pair of jeans that happened to be my size for $4. They had a whole pile of khakis, but these don’t go together well with 5th wheel grease. Rue21 had a 50% off sale on the whole store, but they couldn’t be bothered to open the store on time so they missed a sale. Retail is really dismal.
Julian — you need to check out the DollarShaveClub.com. You can get blades sent to you at home very cheaply and the quality is great, both my husband and son use it. My husband went from spending over $30 a month to $9.
Nothing a little bit more debt won’t fix.
I’ve heard of them Petunia, but I don’t think I pay more than $9 or $10 a month on supplies. If they stop stocking the twin blades at some point in the future I may have to do something about being technologically challenged and go online. I’ve tried the newer blades and they don’t work any better and are 3X the price. It’s all I can do to run this venerable I-phone 4. LOL