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Global PMI Pulse: Impressive Expansion While China Stalls

The latest round of PMI data is in. The economy continues to hum along at a fast clip despite ongoing supply chain issues and as central banks turn more hawkish. 2021 global real GDP growth looks to verify above 5%, perhaps closer to 6%, among the best rates in the last 50 years.

Strong Growth Around the World
October PMI data was particularly encouraging last week. The data show that the proportion of countries with a PMI above 50 reached 90%. Most countries are seeing significant economic growth as the world fights off the final wave of COVID-19 (knock on wood). Our flagship Weekly Macro Themes report details the latest COVID trends which bolster the rationale for improving global GDP growth.

Backlogs Remain an Issue
Not everything is coming up roses, however. Digging into the monthly economic data, we find that trade orders have dipped amid stubbornly elevated backlogs. Indeed, supply chain constraints are causing hiccups in both demand and consumption.

Trade Growth Set to Taper-Off
Maybe more concerning is the decline in trade orders from the USA. Within manufacturing PMI data, the average of export and import order subindexes has turned downward in the USA and China. Import and export volumes had been increasing during the second half of 2020.

Not surprisingly, the rate of global trade volume growth has eased, too. The softening among these indicators is evidence that logistical constraints are hampering trade growth.

China Stands Out on the Downside
Honing in on China, PMI data reveals issues for the global recovery. The breadth of China’s manufacturing PMI subindexes remains at the lowest reading on record.

The employment subindex (combining manufacturing and non-manufacturing subindexes) has also deteriorated, so it is not just a trade growth story. Adding to the troubles is that stimulus from the Chinese government may not come until 2022 at the earliest.

Credit Concerns in China Persist
China has become a drag on the global recovery story. The nation’s manufacturing PMI is steady near 50, which suggests neither expansion nor contraction. Meanwhile, the global ex-China manufacturing PMI index has softened from 60 to a still robust 57.

September’s crisis de jour was undoubtedly the Evergrande/property credit market event. While Evergrande (HK:3333) came and went, the credit situation has arguably gotten worse. Just last week, the China High Yield index increased to a fresh 2021 peak.

Moreover, China’s Credit Impulse index has fallen to its lowest level since late 2018—this indicator has historically been a harbinger for global manufacturing PMI. Traders should pay close attention to the Chinese credit market as we head into the new year. As the optimistic reopening narrative fades and stimulus eases, the focus might turn to weakness in China.

Bottom line: Economic growth around the world appears to be on a good pace considering 90% of all PMIs are at 50 or higher. Under the surface, however, there are significant concerns (mainly in China) that are being masked by reopening optimism and lingering stimulus measures around the rest of the world.
Source: By Mike Zaccardi, CFA, CMT

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