This week's "Flash" (preliminary) Composite Purchasing Managers reading dipped further into contraction territory, supporting our thesis that odds favor recession vs continued expansion in the coming months.
However, as I've stated numerous times herein, our current assessment is that any recession here would likely be mild, by historical standards -- due to existing and developing factors of both a domestic and an international nature.
Wednesday's Wall Street Journal article titled Global Economy Slows, but Seems to Be Faring Better Than Feared agrees with our thesis... The areas I bolded will sound familiar to regular video watchers:
"Business surveys released Wednesday pointed to declines in output across the U.S. and Europe’s largest economies in November. But the figures and other economic readings pointed to a mixed outlook, with some parts of both economies continuing to show resilience despite high inflation and rising interest rates.
In China, the world’s second-largest economy, the outlook is highly uncertain as the country faces a surge in Covid-19 cases. Economists expect a rebound in growth next year as Beijing attempts to ease tough pandemic policies.
A tight U.S. labor market and still strong household balance sheets are supporting consumer spending, the economy’s main engine. A healthy consumer helped power retail sales in October and could keep the world’s largest economy growing at the end of this year. The U.S. outlook depends in part on how it weathers the Federal Reserve’s interest-rate increases aimed at cooling inflation that is running near a 40-year high.
Europe is experiencing less economic disruption from Russia’s decision to limit energy supplies than analysts earlier feared. Many households and businesses in the region are adapting by, for instance, cutting back on energy consumption, said Adam Posen, president of the Peterson Institute for International Economics. European governments also distributed larger-than-anticipated sums of fiscal support to households to help address rising energy and food costs, he added.
“We’re going to end up with more than 75% of the world’s economy actually doing pretty well,” Mr. Posen said. The U.S. and European Union “are likely to have relatively short, not terrible recessions and return to growth possibly by as early as the fourth quarter of 2023.”
GM Marty! Thanks for today's updates. China is quite interesting. They recorded 33,000 people who got infected with Covid recently. That number is quite high compared to the past. But yet, the Chinese government seems to tolerate a higher number. There are two (2) scenarios that might play out. One (1) is that the Chinese government continues to tolerate higher numbers. Two (2) is that the Chinese government resumes back to a severe crackdown like 2020. The funny thing is that China controls people watching the World Cup because people start to question why are they wearing masks while the rest of the world has moved on from Covid. It is a choice that Xi has to make and that will have a lot of consequences for the Chinese economy.
ReplyDeleteGM Sam! My pleasure... Good points regarding China... My current position is simply: 1) No doubt the Chinese govt anticipated a big spike in covid cases as they begin to exit zero-covid. 2) That lockdowns will be shorter duration, done with minimal fanfare, and more concentrated in terms of the real estate covered (all playing out). 3) That dissenters will suffer publicly-announced consequences. 4) That the dissention will actually inspire the govt to continue opening up and dealing with the medical ramifications. 5) That to offset the economic consequences of the increase in targeted lockdowns, stimulus will be continually brought to bear.
ReplyDeleteWhether, as I imply above, the push away from zero-covid continues in the short run amid the latest spike in cases, I hold zero doubt that zero-covid will gradually become a thing of the past over the next year or two...
The political incentive to nurse their economy, and their markets, back to health is huge going forward.