The latest batch of Markit PMIs as noted show a 14 month low in global expansion. This contrasts with some confidence in a number of quarters with respect to US economic momentum in the light of “strong” Q3 GDP and recent gains in employment. I have commented on the GDP and employment frames in earlier posts which suggests that less focus should be placed on monthly data and more on structural imbalances and trends.
That said recent manufacturing order data may be suggestive of a slowdown from the elevated figures seen earlier in the summer. While this may not signal a downturn it does raise questions over the underlying strength of growth going forward:
Total manufacturing orders have fallen in the last 4 months fully reversing the rise from March to July and the weakness is significant:
The decline in orders is partly a reflection of the outsize increase in transportation orders in July, but the annual growth itself (which isolates the summer surge) is particularly weak and suggests that a rate rise is not necessarily required. The recent weakness suggests the Fed may not be behind the curve and recent global economic weakness would also suggest caution.
The following chart shows annual real rates of growth of manufacturing orders (deflated by PPI) on two basis: the red line is the annual real growth rate based on the rolling average level of orders over 6 monthly periods which means that the late summer order surge is included in the calculation (we are looking at order capacity as opposed to monthly order levels).
If the June/July order levels were one offs unrelated to economic capacity for orders then it looks as if order growth is turning over and possibly reflective of the wider global economic malaise. If not, recent weakness is merely a short term adjustment to order timing and the underlying trend of growth seen since the latter part of 2013 remains. We can however see that excluding transportation orders that quarterly order growth has been declining since April/May:
And the trend is the same for non defense capital goods excluding aircraft:
Looking at absolutes as opposed to % changes, we see what may also be a natural correction from high summer order levels:
Something also reflected in % changes based on smoothed rolling average monthly data over 6 month time periods:
And again we can see the divergence in absolutes between month by month data and smoothed 6 monthly data:
But again, the smoothed data may be influenced by an excess order profile experienced during the summer:
And real order profiles over time shows a constrained growth profile:
Also as growth in producer price inflation is falling the difference between nominal and real order levels has effectively disappeared.
