Not long ago this kind of thing might have been dismissed as the sort of sentiment-driven volatility we have become used to in the first weeks of 2016. But the fact is a lot of fundamental economic data has disappointed recently, too. Aggregated indicators of global economic fundamentals have dropped to multi-month lows. We are evidently moving through a real soft patch in the global economy, a slowdown more severe than most people anticipated.
For some, these are the early indications of a coming global recession, the end of a business and credit cycle that has already lasted a very long time by historical standards. We disagree.
The US manufacturing sector PMI has been contracting for some time and many were looking fearfully for any sign the non-manufacturing index was following suit. Sure enough, the last reading came in much lower than expected.
But that index is still in growth territory above 50. As such, the composite US PMI is still indicating economic growth, as is the global version of the index. And, lest we forget, US unemployment is under 5% and still falling, with another 151,000 jobs added in January. The S&P 500 Index may have given up some value in recent days, but the price of oil has actually recovered significantly from its recent low levels. With so many contradictory signals, it is not easy to determine which we should be looking at.
