The gradual recovery in manufacturing should be welcomed rather than looked for as a cause for concern. The good news is that the global economy appears to have avoided a long-term downturn, which seemed like a reasonable outcome last year. The United States does not need to carry the world on its shoulders, at least not as much as it did before. Countries that are key nodes in factory supply chains accelerated in March. The Institute for Supply Management’s reading was too high for some traders’ liking, but don’t let that distract from the very strong performance on Asian production lines and docks. If the region can perform better than last year’s mediocre performance, it could really contribute to a long-term global expansion.
This is something to celebrate rather than despair about. Indeed, the first expansion in U.S. manufacturing since 2022 has delayed predictions of how much the Federal Reserve will stimulate the economy and when that gradual easing might begin. Some policymakers had already expressed concern ahead of Monday’s ISM report that the Fed was forecasting multiple rate cuts. The unexpectedly strong U.S. numbers are not necessarily a major setback; central bank leaders have been stressing for some time that there is no need to rush.
Given the rapid monetary tightening that has characterized 2021 and 2022, the U.S. economy is performing well. The big power that has received much of the bad press is China. So the upbeat data from manufacturing is especially welcome. China’s closely watched Purchasing Managers’ Index rose more than expected in March, according to figures released just hours before the ISM report. Factory activity has expanded for a fifth month. Other encouraging signs include a recovery in exports and the end of the longest deflation since the 1990s in February.
But China’s woes are not over. Collapsing property prices are still a drag on growth, consumer confidence is sluggish and businesses are curbing spending, making further stimulus likely. But compared to the bad vibes and “China is finished” talk, it would be rude not to acknowledge the good news when it comes. There may now be too much negativity about the world’s second-largest economy.
Manufacturers in Japan and Taiwan also had strong months. Disappointing results in South Korea were mitigated by strong exports, with semiconductor shipments up 36% year over year. There’s plenty to be positive about.
Nor has industrial production reached a booming point. The World Trade Organization is pessimistic about the outlook. But take some solace in what is going well. Until recently, a global recession seemed a reasonable bet. After all, central banks have been so eager to contain the expansion that they often overshoot. Authorities tend not to realize that their containment policies have worked until it is too late. This concern was especially prevalent in the euro area and the UK. The Asian expansion was not over, but it was slowed by China’s woes. Only the US seemed healthy enough to carry the burden.
Those fears are fading. While it’s still too early to change your mind, some key indicators of the global economy are turning around. Let’s not let the perfect be the enemy of the good. Something good happened in March.
