China PMI, US PCE Inflation: Global Recession Risk is on the Rise
Image courtesy of Shutterstock

Global Recession is a Growing Risk

By:Ilya Spivak

China struggles while U.S. inflation data points to “higher for longer” Fed rate path

  • Chinese PMI surveys to show the economy continued to deteriorate in August.
  • U.S. PCE report seen echoing CPI data, showing inflation accelerated in July.
  • Weak China, “higher for longer” Fed rates outlook boost global recession risk.

The world’s top two economies are diverging, and that’s bad news for global growth.

Purchasing managers index (PMI) data out of China is expected to show that economic activity growth continued to deteriorate for a fifth consecutive month in August. The manufacturing sector has been contracting since April and is projected to shrink further, according to a Bloomberg survey of economists.

The service sector is seen growing at the slowest pace so far this year, a telltale sign of the disappointment on display since Beijing opted to scrap “zero-COVID” restrictions in December 2022. An early burst of domestically driven growth powered by pent-up demand has seemingly fizzled, while overseas appetite has not returned to pre-pandemic levels.

China PMI
Data source: Bloomberg

Economic data outcomes have increasingly underperformed relative to consensus forecasts in recent months, according to figures from Citigroup. This suggests that analysts’ models are still rosier than they ought to be, implying scope for another set of surprises on the downside when the PMI numbers cross the wires.

PCE data expected to confirm U.S. inflation picked up in July

Meanwhile, July’s edition of the personal consumption expenditures (PCE) inflation measure–the Fed’s favored benchmark for price growth—is seen echoing consumer price index (CPI) numbers published earlier this month. They showed disinflation stalling, and PCE is expected to follow suit.

The service sector continues to be the culprit. Housing is the largest contributor to price growth, where Jerome Powell, chair of the Federal Reserve and company have relatively little agency to create near-term change. This is likely to keep the spotlight on the labor market, where a lingering post-pandemic disparity between supply and demand made inflationary wages sticky.

U.S. Labor Supple/Demand vs. Inflation
Data source: Bloomberg

Some signs of cooling have started to emerge as recently as this week. Job Openings and Labor Turnover Survey (JOLTS) data this week showed that job openings fell by more than expected in July. Hiring data from ADP–a large payroll processing firm–undershot forecasts for August private sector employment growth by 18,000 jobs.

Still, analysts have penciled in a 3.5% unemployment rate to be reported in official August labor market statistics due out Friday. That’s just a hair above the 55-year low at 3.4% recorded in January (and matched in April). Federal Reserve officials have made a point of wanting to see this rise in earnest if they are to believe that disinflation will succeed.

Global recession risks are rising on weak China, inflation-minded Fed

This has driven markets to adjust priced-in policy expectations to a “higher for longer” interest rate path, even amid vigorous debate about the probability of another 25-basis-point (bps) rate hike this year. Fed Funds futures show the 12-months-forward outlook for the U.S. central bank’s target rate has moved from 3.6% to 5% since early May.

On balance, this means that the Fed is of a mind to cool U.S. growth further while China offers little by way of offset. Adding now nearly certain Eurozone recession to the mix makes global recession a clear and present risk in the near-term. Taken together, these three economies amount to over half of worldwide gross domestic product (GDP) growth, and that’s before considering that most of the rest are – in one way or another—vendors dependent on demand from one or more members of the trio.

Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.  Options, futures, and futures options are not suitable for all investors.  Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on

tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.

tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.

tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.

© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved.  Applicable portions of the Terms of Use on apply.  Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.