Global Recession Looms in US and China PMI Data. Will Markets Notice?
Global Recession Looms in US and China PMI Data. Will Markets Notice?
By:Ilya Spivak
Global recession looks increasingly inevitable. When will the markets have to deal with it?
- PMI data shows the manufacturing sector is unraveling in China and the US
- ISM service sector gauge may show the US economy at its slowest in a year
- Alongside weak Europe, markets may be forced to deal with global recession
China’s manufacturing sector shrank for the first time in eight months in May, according to purchasing managers index (PMI) data from S&P Global and Caixin, a Chinese media group. The sector recorded the sharpest fall in new orders since September 2022. Exports fell for a second consecutive month.
Businesses polled for the report reported cutting back employment as inventories grew for the first time in four months. In a nod to the US-China trade war, the report warned that “uncertainty in the external trade environment has increased.” Alongside domestic headwinds, “downward pressure on the economy has significantly intensified.”
Manufacturing is in dire straits in China and the US
Official PMI data from the China Federation of Logistics and Purchasing (CFLP) alongside the National Bureau of Statistics (BLS) published over the weekend was similarly gloomy. It showed the overall economy remained near standstill last month as a modest uplift from services offset contraction on the manufacturing front.
Analog figures from the United States were hardly more encouraging. The Institute of Supply Management (ISM) said activity in the US manufacturing sector contracted for a third consecutive month, and at the fastest pace since November. That was a gloomier outcome than analysts anticipated ahead of the release.
Output, new orders, employment, and the backlog of new business all continued to decline. An update of the S&P Global version of the data looked a bit more encouraging at surface level, but this mostly spoke to fleeting tariff-related influences rather than lasting strength.
ISM service sector data may add to global recession fears
From here, the spotlight turns to the ISM rundown of the service sector. A slight acceleration is expected in May, marking the second consecutive month of improvement. Taken alongside the deepening slump in manufacturing however, the cumulative picture seems to be of a sluggish economy where growth has slowed to the weakest in a year.
An anemic China and a sluggish US are joined by a Eurozone that seems to be sliding backwards. PMI data released last week showed the region slipped back into contraction mode for the first time in five months in May, shrinking at the fastest pace since February 2024.
The three powerhouse economies account for a hefty 58% of worldwide growth. Moreover, the remaining 42% are mainly vendors to the former three, making them dependent on the leaders to generate demand of their own. Absent a shocking upside surprise on the ISM front, the markets may be forced to reckon with rising global recession risk.
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
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