It's Time to Act
The world economic picture is darkening. Recent reports for major regions indicate that the probability of a global recession has risen significantly in recent weeks. The Eurozone financial and political quagmire continues unabated, while economic data from that troubled region indicate a deepening manufacturing downturn and a widening slump. Recent manufacturing data from China indicate that the path of the world’s second largest economy may be crossing the line from a soft to a hard landing.
Reports just this morning from the U.S. testify to the impact of global troubles and add to concerns about the strength of the world economy. The Purchasing Managers Index from the Institute for Supply Management was below 50 percent during August, indicating contraction in the U.S. manufacturing sector. The Index has now signaled contraction for three consecutive months and the component data testify to fundamental weakness. New orders, the backlog of orders, production, and exports were all disturbingly below the 50 percent mark. Employment, which has been a moderately strong point for U.S. manufacturing, fortunately continues to grow but at a slower pace.
A sharply slowing global economy and policy uncertainty in the U.S. are sapping the U.S. manufacturing sector of the strength that allowed it to be a growth catalyst in the earlier quarters of recovery from the destabilizing 2007-2009 recession. While slow growth remains the central forecast for U.S. manufacturing, the risk of an actual factory sector contraction has risen considerably in recent weeks.
Of greater concern than the data is the seeming inability of governments to develop effective solutions. The U.S. is months away from a fiscal shock that will throw us into another significant downturn. Washington seems unwilling or unable to act. The stability of the 17-country Eurozone is hanging by a thread with little sense of the mature coordinated thinking and acting that is needed for the resolution of a difficult crisis. Even the Chinese government, which acted quickly and impressively to insulate its economy from the worst of the 2009 crisis, now seems hesitant to implement a strong stimulus.
It’s time for leadership. A world that is confronting high levels of long-term unemployment and a murky future can afford no less.