Economic growth in countries that are important nodes in factory supply chains accelerated in March
The modest pickup in manufacturing should be welcomed, not looked for warnings. The good news is that the global economy appears to have avoided a prolonged downturn, which would have seemed a plausible outcome last year. The United States does not have to shoulder the blame for the world economy, at least not to the same extent.
In March, countries that are important nodes in the factory supply chain experienced accelerated growth. Although the US Institute for Supply Management (ISM) index was a bit too hot and did not meet the expectations of some traders, don't ignore the strong performance of Asian production lines and ports. If the region can perform better than last year's lackluster performance, it will make a real contribution to the long-term expansion of the global economy.
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That’s cause for applause, not despair. Yes, the U.S. manufacturing sector expanded for the first time since 2022, pushing back expectations for how much the Fed will pump into the economy and when it will begin modest easing. Before Monday’s ISM report, some policymakers had already expressed concerns about the multiple rate cuts the Fed had forecast. Unexpectedly strong U.S. data isn’t necessarily a major setback. Central bank leaders have been stressing there’s no rush.
The U.S. economy is holding up well given the rapid tightening of monetary policy in 2021 and 2022. The big country that has received a lot of negative press is China. That makes the upbeat data on manufacturing particularly welcome. Hours before the ISM report, data showed that China’s closely watched purchasing managers’ index rose more than expected in March. Factory activity has expanded for five straight months. Other encouraging signs include exports picking up and the longest deflationary cycle since the 1990s being broken in February.
All this doesn’t mean China’s woes are over. The housing crash is still weighing on growth, consumer confidence is low, and businesses are reining in spending, and further stimulus may be needed. But against all the negativity and “China is done” talk, it would be churlish not to acknowledge the good news. There may be too much negativity right now about the world’s second-largest economy.
Nor does it mean industrial output is at its best. The World Trade Organization is pessimistic about the outlook. Let us take some solace, though, from the fact that some things are going well. Not long ago, a global recession seemed a reasonable bet. After all, central banks try to curb expansions, but they tend to overshoot. Authorities often don’t realize that restrictive policies have worked until it’s too late. Such concerns are particularly prevalent in the eurozone and the UK. Asia’s expansion isn’t over, but it’s been held back by China’s woes. Only the US looks resilient enough to carry the load.
