Factories in the U.S. and Other Major Economies Remain Mired in a Slump
Factory surveys from different corners of the world send a unified message of a slump in factory activity. In the U.S., the ISM manufacturing survey for December paints a picture of severely weak factory conditions. The composite index fell to 32.4 in December from 36.2 in the prior month. Readings below 50.0 denote a contraction in factory activity. The composite index has held below 50.0 during nine months of the year. The 32.4 reading of December is the lowest since June 1980 (see chart 1).
With the exception of the import index, all other subcomponents recorded declines in December. The index tracking new orders dropped to 22.7 in December from 27.9 in November. This is a record low for this index which goes back to 1948 (see chart 2).
The production index declined to 25.5 in December, a six percentage-point drop, which puts the index also at a record low (see chart 3).
In Europe, Germany, France, and the U.K. all reported declines in indexes of purchasing managers in December. The overall Markit Eurozone Purchasing Managers’ Index (PMI) for the manufacturing sector declined to 33.9 in December, a record low in the 11-year history of the survey. The German Markit Purchasing Managers’ Index fell to 32.7, the lowest since the survey began in 1996, and the December decline marks the fifth monthly contraction in factory activity. The French Markit/CDAF purchasing managers’ index for manufacturing dropped to 34.9 in December vs. 37.3 in November. This reading is the lowest since record keeping for this series began in April 1998. Britain's manufacturing sector contracted for an eighth straight month running in December. China’s, factory sector has contracted for the fifth month running according to the CLSA China Purchasing Managers’ Index. Although the Australian Industry Group-PricewaterhouseCoopers Australian Performance of Manufacturing Index rose one point in December from November to 33.7 index points, this index has recorded readings below 50.0 for seven consecutive months, indicating an extended period of contraction in factory activity. In sum, weak economic conditions across the world is a challenge for policy makers in the months ahead.
Singapore: (Un)Happy New Year!
Today’s release of the Q4 flash GDP estimate came with a revised growth forecast for 2009. Let’s just hope the Singaporeans passed on the champagne this year.
First off, the flash estimate expects a Q4 contraction of 12.5% at a seasonally adjusted, annualized rate (forecast median was mere -3.4%), marking its third straight quarter of negative real GDP growth. From a year ago, the economy shrank by a larger-than-expected 2.6% (forecast median was -0.4%), and much larger than last quarter’s y-o-y contraction of 0.3%. Even more shocking, for all of 2008, the economy grew an expected 1.5% compared with a whopping 7.7% for 2007.
As the financial crisis deepens in the developed world, trade-reliant Singapore’s major export markets are all, understandably, pulling way back on consumption. This external demand destruction has already been reflected in the dismal performance of the manufacturing sector since Q2, when it began contracting on a year-to-year basis. The most recent decline of 9.0% was preceded by a peak 11.0% drop in Q3. This quarter, however, we have finally begun to see a pull-back among local consumption as well, as slower economic activity destroys consumer confidence and disposable income. As a result, the services component of GDP will likely barely post a positive year-to-year reading for Q4 (1.1% growth y-o-y), and is expected to turn negative in Q1 2009 due to further domestic demand destruction.
With nowhere to go but down, demand (both external and domestic) is expected to drag Singapore’s economic activity to new lows. The startling notion is that the current recession could prove to be worse than those of both the 1997 Asian Financial Crisis (-1.4%) and the 2001 dotcom bust (-2.4%). To usher in the New Year, Singapore’s government released a revised forecast for 2009 growth from November’s numbers (between -1% to +2%) that now look enviable. The new forecast expects growth anywhere from -2% to +1%, with risks to the downside, which may in fact put Singapore in the running for the top ten worst-performing economies in 2009. To be fair, it is near the top of that list, but just making the list leaves little to pop a cork about.
is near the top of that list, but just making the list leaves little to pop a cork about.
