The global manufacturing and services sectors shrank rapidly last month, according to the JPMorgan Global Purchasing Managers’ Indices (PMI) for manufacturing and services.
While the global PMI for manufacturing sank to a record low of 41, the index for global services fell to 44.2, its second lowest reading since it was first compiled in 1998. The only time this index had fallen lower was in 2001, the month following the attack on the World Trade Center.
A reading of above 50 signifies an expansion in activity from the previous month, while a reading below 50 shows contraction.
The global PMI for manufacturing has been below 50 for five straight months, but the readings for both August and September showed the services economy was still expanding. Earlier, however, services had contracted in June and July. What’s noticeable is the sharp drop in October, implying rapid deterioration in the services sector.
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The new business sub-index of the global services PMI had a reading of 43.2 in October, which is an indication that the future is going to get worse. The corresponding sub-index in the global manufacturing PMI, the new orders index, was at an even more dismal 36.2, indicating that new orders are rapidly drying up.
The other worry is a contraction in employment. The employment sub-index of the services PMI was at 44.1 in October, while it was 42.2 for the manufacturing PMI. While global manufacturing employment contracted for the third successive month, job losses were especially severe in the US, where employment fell at the quickest pace since March 1991. In services, the decline in staffing was the worst in the history of the survey. That doesn’t augur well for future demand.
The composite PMI for manufacturing and services, called the JPMorgan Global All-Industry Output Index, which is a snapshot of conditions in the overall global economy, fell to 43.1 in October, the fifth successive month of a reading below 50, implying the world economy has been contracting for the last five months. What’s more, the successively lower readings indicate the pace of the downturn is accelerating (see chart).
Incidentally, the global manufacturing survey says, “With the exception of India, which again bucked the global trend, all of the national manufacturing surveys posted declines in output and new orders.” With the survey for the Chinese manufacturing sector also showing a contraction, all the big global engines of growth are now contracting.
India’s domestic demand seems to have enabled it to continue to expand, albeit at a slower pace. And although India does not figure in the global services PMI, it’s likely that it will also show a similar trend of slower expansion.
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