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Economy in Brief

Charts of the Week (Sep 2, 2022)
by Andrew Cates  September 2, 2022

Haver Analytics is launching today its inaugural ‘Charts of the Week' publication. Every Friday we will publish six charts accompanied by a brief overview and some commentary that showcase our databases (including new data additions) and our analytics. Most of these charts will drill into the latest global economic dataflow and highlight some of their more noteworthy trends and implications. But we will aim to flag other topical data points too from our non-macro offering including, for instance, from our ESG database.

A common theme from our charts this week is the downside risks that have been accumulating for the world economy in the last few weeks. Forward-looking survey data have fallen, or are closer, to levels that have previously been associated with recessions. Most major central banks, in the meantime, have either continued to lift interest rates and/or communicated – with greater zeal - their intentions to do so not least because labor market activity is still quite strong. Emerging market economies in the meantime have remained under pressure, in part because of a strong US dollar, but also because of ongoing weakness in China. Finally geopolitical tensions have remained intense in Eastern Europe, which is magnifying supply-side bottlenecks, not least in the energy sector, and further disrupting economic activity on the broader European continent.

Global growth

Last week's flash PMI data for the US, Euro Area and Japan suggested that aggregate output contracted in August and to a degree that - excluding the first wave of pandemic lockdowns - was the steepest since the global financial crisis in 2009. A similar message emerged from this week's final manufacturing PMI for China.

Chart 1: Composite PMIs are flagging higher recession risks for the world economy

Demand, supply and commodity prices

Those final manufacturing PMIs for other major economies also suggested that suppliers' delivery times are shortening. Combined with ebbing new orders that might help drive commodity prices to lower levels in the period ahead.

Chart 2: Manufacturing PMIs suggest global supply chain bottlenecks are easing partly thanks to ebbing demand

The US labor market

The new National Employment Report (NER) from the ADP Research Institute published this week suggests that employment at the largest US firms weathered the pandemic well while employment at the smallest firms is still floundering. The new NER doesn't attempt to forecast the BLS private payroll figure. Still, while the NER suggests overall labor market activity is slowing, it is probably not yet weak enough for the Fed to step back from its tightening campaign.

Chart 3: US ADP report highlights big differences in employment in small and large companies

The US dollar, China and emerging markets

The Fed's inflation-fighting zeal has generated troublesome ramifications for the rest of the world – and emerging economies in particular - via a firming US dollar. But a slowdown in China has not helped. Restrictive COVID policies may well resume in the coming days while broader issues continue to engulf its property sector, threatening, in turn, to re-ignite economic and financial instability.

Chart 4: A strong dollar and the ECB's composite indicator of China's financial stress

European natural gas prices

Natural gas prices (on which Europe is heavily dependent for its energy needs) have dipped a little in recent days but that follows a surge in recent weeks. Geopolitical tensions and specifically news that Russia has suspended (and may continue to suspend) supplies of natural gas via the Nord Stream 1 pipeline have been key catalysts. Preliminary (flash) data from Eurostat this week incidentally showed that CPI inflation in the Euro Area rose by 9.1% in the year to July, up from 8.9% in August. Energy prices accounted for around 45% of that annual gain.

Chart 5: Europe's natural gas prices are climbing in part because supply is being choked off from Russia

Germany's water levels on the Rhine

Another factor weighing on the European economy concerns Germany and specifically water levels on the Rhine River. These have been very low because of unusually hot and dry weather which has hampered many vessels from navigating critical European shipping routes. This, in turn, may have been a further factor (aside from high energy prices) that's lately restrained industrial activity in the German economy.

Chart 6: Germany's Rhine Water levels versus manufacturing production trends

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