The global recession is getting deeper every month.
The JPMorgan Global All-Industry Output Index, which is a composite index made up of the purchasing managers’ indices for both manufacturing and services from many countries around the world, hit a new low of 35.4 in November.
Any reading below 50 signifies contraction.
As the chart shows, the global economy has been contracting since June, but the pace has quickened sharply in the last two months. The fall in November has been particularly steep, with the index down to 35.4 from 43.1 in October.
There are two components of the index, the global manufacturing index and the global services index.
The manufacturing index was down to 36.4 in November, the lowest reading since 1982. That was the time when the world economy was reeling from the effects of the oil price hike, compounded by a savage rise in interest rates that plunged the US into a recession. But the causes of the recession then were very different from the current circumstances.
The global index for services, too, has fallen to around the same level as the manufacturing index, going down to 36.1 in November.
Also See Downsizing Effect (Graphic)
A break-up of the All-Industry Output Index shows the new orders index, the employment index as well as the input prices fell at a record rate last month.
As the survey put it, “November PMI (Purchasing Managers’ Index) data pointed to a further substantial reduction in employment, as companies downsized their workforces in response to the onset of the global economic downturn. This was highlighted by the Global All-Industry Employment Index posting 37.9, down sharply from 43.6 in October, as staffing levels declined at the fastest rates in survey history in both the manufacturing and service sectors. The pace of job cutting was especially marked in the US.”
Clearly, there’s a risk of a downward spiral, with the fall in employment leading to lower demand and lower growth. All the more reason for bringing on that mega fiscal stimulus immediately.