Is a Major Global Economic Recession on our Doorstep?

Tue, Nov 17, 2015 - 3:27pm

Thoughts from Jim Puplava's recent Big Picture podcast, "Headwinds or Tailwinds – What Lies Ahead?," which can be listened to in full on the Newshour podcast page here or on iTunes here.

Slowing global economic growth has been cited as a major cause of stock market weakness this year. However, in his latest Big Picture podcast, Jim Puplava cited two main indicators that show the global economy is not about to fall off the cliff but is actually stabilizing and, perhaps, even showing signs of improvement.

The first economic indicator mentioned ("the global PMIs") is provided by JP Morgan and covers over 85 percent of global GDP. "It is based on non-opinion based monthly surveys of over 16,000 purchasing executives from 32 of the world’s top economies, including the U.S., Japan, Germany, France and China." (source)

We've broken this global indicator into its two subcomponents: manufacturing (in blue) and services (in black), both of which are still growing (above 50 - the red line) and have just recently ticked up.

Source: Bloomberg

With over 85% of the global economy represented, the chart above provides an objective bird's-eye view of where things are headed and, as you can see, it does not appear that the global economy is heading off a cliff and may actually be improving.

The second set of indicators Jim mentioned that do not paint a negative view of the global economy at present are the global LEIs, or global leading economic indicators (in black). Like the JP Morgan global PMI, the chart below represents data tracking a wide range of countries, including the US, China, Euro Area, UK, Japan, and Canada. Collectively, leading economic data for these nations (the OECD countries) are still positive and do not show a global economy ready to tip over into recession.

Source: Bloomberg

Many leading strategists have pointed out that directional shifts in the OECD LEI have a fairly high correlation to the relative performance of early to late stage cyclicals (see here for more information), which we have also shown above. Given the strong upward move in the latter, there is reason to believe that the global economy may start to improve in the months ahead.

We should also point out that both the OECD LEI and relative performance of early to late stage cyclicals were rolling over heading into the bear market and global economic crash of 2008. The data presented by the two charts above show current conditions are stable and not yet warning of an imminent downturn in the global economy.

Listen to this full broadcast with Jim Puplava, President and Chief Investment Strategist at PFS Group, by clicking here. For a complete archive of our broadcasts and podcast interviews on finance, economics, and the market, visit our Newshour page here or iTunes page here. Subscribe to our weekly premium podcast by clicking here.

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