The global economy isn’t falling apart. The U.S. might be.

December 3, 2012

Just a few months ago, the global economy seemed to be stuck in a precarious state. Huge swaths of the world economy were either slowing down or contracting outright, and it wasn’t at all clear whether global economic policymakers would have enough gas left in their stimulus tanks to stop things from spiraling into a bad place.

But the latest data in a wave of reports on the manufacturing sectors in nations around the world overnight and Monday morning suggest that the world has avoided that fate. The same cannot be said of the United States, however.


China's manufacturing sector expanded in November, helping allay fears of a global downturn. (Aly Song/Reuters)

China’s manufacturing sector expanded in November, with an official manufacturing index rising to 50.6 from 50.2 and an unofficial index from HSBC rising to 50.5, from 49.5. (In those indexes, like all of those cited here, numbers above 50 indicate expansion, and the indexes are based on surveys of purchasing managers at manufacturing firms). Other emerging Asian economies also saw increases, including South Korea, India and Vietnam. 

In Europe, the news was also positive, though positive is a relative concept on a continent where many nations are in recession and a few are in depression. For the 17-nation euro zone as a whole, the manufacturing index rose to 46.8 from 45.7, signaling that the contraction continued but is becoming less severe. Manufacturing indexes from Markit Economics rose in the continent’s industrial powerhouses of Germany and France. Perhaps most promisingly, in Spain, land of more than 25 percent unemployment, the index jumped to 45.3, from 43.5.

Italy was the only disappointment among the large European economies, edging down. Other countries with negative results in their manufacturing indexes include Japan, Indonesia and Russia.

 But put it all together, and the portrait painted by the manufacturing reports is of a world economy that isn’t going off the rails. China’s slowdown over the summer was not, so far at least, the start of any broader economic collapse. Europe’s recession is bad, but major European economies aren’t in free-fall. Mario Draghi, president of the European Central Bank, said in an interview with Europe 1 radio Friday that a euro-zone recovery “would start probably in the second half of 2013.” The new numbers Monday seem to fit that forecast; contraction remains underway for now, but the pace of that contraction is slowing.

This is all good news. One of the major weights that has hung on U.S. companies over the last few months has been a slowing global economy; American exporters have dealt with less actual demand from overseas, as well as fear that the slump could become an all-out global recession.

The first of those factors remains. While the latest manufacturing numbers represent improvement, they still signal an economic contraction in Europe and weaker growth in emerging Asian economies than everyone had become accustomed to over the last few years.

But it is that second risk that is increasingly off the table. This is a run-of-the-mill recession in Europe, not an all-out economic collapse. The weakness in China and other emerging Asian economies is more a soft patch than an end to two decades of rip-roaring growth. If those trends hold up, then exports to the rest of the world can be a strength for the United States in 2013, rather than a drag.

All of which brings us to the United States. The Institute for Supply Management's purchasing managers' index fell sharply, to 49.5, from 51.7 in October. The details of the number were simply terrible. The actual level of production activity at American factories actually rose, but new orders fell 3.9 percent, which bodes ill for the future. The employment component of the survey fell to its lowest level since September 2009, which is hardly an optimistic sign for the November jobs numbers due out on Friday.

For the last several months, U.S. firms have blamed economic weakness abroad for their own hard times. But the combination of improving manufacturing numbers around the world and weakness in the United States suggests that this is no longer a global story. We have to look inward -- particularly to the uncertainty around the resolution of the fiscal cliff -- to explain what is happening in the U.S. economy.

"The fiscal cliff is the big worry right now," said an unnamed executive of a fabricated metal products company quoted by the ISM in its release. "We will not look toward any type of expansion until this is addressed; if the program that is put in place is more taxes and big spending cuts — which will push us toward recession — forget it."

If current trends hold, the world economy could be supportive of growth in 2013, setting the stage for a good year. Now it's up to Washington not to screw it up.

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