China Manufacturing Hits 17-Month Low

The growth of Chinese manufacturing, the great engine of the Asian nation’s remarkable GDP expansion, slowed to a 17-month low in June. It is not surprising but is rather a bookend to a two-day period the beginning of which was the announcement that GDP expansion in the US is decelerating. China’s economic health is still the by-product of Western demand more that it is the consumption patterns of an expanding middle class that seems intent on saving as much as consuming. This is because China’s social safety nets are not mature and entirely universal and that it has an aged population, now retired, that numbers in the hundreds of millions.

The Purchasing Managers’ Index fell to 51.2 from 52.1 in June, the Federation of Logistics and Purchasing said. Another measure, the purchasing managers’ index from HSBC Holdings Plc and Markit Economics fell to 49.4 from 50.4 in June. A number of 50 represents growth, so China is getting close to the flat line of manufacturing expansion or may have dropped below it. The trouble may still be in its early stage and could extend to the end of this year and into next. “Of 11 sub-indexes, only the measure of employment gained, climbing to 52.2 from 50.6,” according to Bloomberg

Europe’s economic growth, leaving Germany aside, remains moribund, particularly in weak nations like Spain where unemployment is now over 20%. Many economists believe that GDP in the US will slow further in the current quarter and the number of jobless people in America, particularly the long-term unemployed will continue to expand. The idea that a jobless recovery could be sustained has always been flawed and that has become more clear as the year has passed. China cannot count on its trading partners to fuel a recovery in manufacturing and it appears it cannot count on its own citizens.

The theory that the American and Chinese economies could be “decoupled” never made any rational sense although it has been argued since well before The Great Recession began. It deep flaws are now showing.

Douglas A. McIntyre