The global economy continues to cool with China’s purchasing index barely above contraction levels, weekly unemployment claims in the US not only stubbornly high but headed in the wrong direction, and the US ISM weaker than expected.

Bloomberg reports China Manufacturing Slows for Second Month, PMI Shows.

China’s manufacturing expanded at a slower pace for a second month in June, adding to signs that growth in the world’s third-largest economy is moderating.

The Purchasing Managers’ Index fell to 52.1 from 53.9 in May, the Federation of Logistics and Purchasing said in an e- mailed statement today. That was less than the median 53.2 estimate in a Bloomberg News survey of 12 economists.

Signs of the slowdown have unsettled investors around the world because limited demand in advanced economies has left global growth reliant on emerging markets, led by China. Asian stocks headed for a third day of losses.

An output index fell to 55.8 in June from 58.2 in May, today’s report showed. A measure of new orders slid to 52.1 from 54.8 and an export-order index dropped to 51.7 from 53.8. A measure of input prices decreased to 51.3 from 58.9, the biggest fall in the 11 sub-indexes.

Baosteel Group Corp., China’s second-biggest steelmaker, this week scaled back its growth plans, cutting its target for capacity in 2012 by 38 percent and forecasting a “bumpy, unpredictable and long” global recovery.

In China, policy makers have spent the first half of the year seeking to prevent property-price bubbles and contain inflation, which surpassed the government’s full-year target of 3 percent in May. So far, the winding back of the stimulus has not included an interest-rate increase.

Short-term China risks over-heating if it does nothing and a crash if it overreacts. Either way, China’s property bubble will bust, the only question is the timing of it.

Unexpected Weakness in U.S. Manufacturing ISM

Inquiring minds note that U.S. Manufacturing Grows at Slower Pace Than Forecast in ISM’s June Index

Manufacturing in the U.S. expanded in June at a slowest pace this year as factories received fewer orders and demand from abroad cooled.

The Institute for Supply Management’s manufacturing gauge fell to 56.2 last month from 59.7 in May. A reading greater than 50 points to expansion, and the median forecast of economists surveyed by Bloomberg News was 59. A measure of new orders dropped to the lowest level since October.

The economic recovery in the U.S. is being accompanied by a labor market that’s taking time to improve and a struggling housing market. First-time filings for jobless benefits rose 13,000 last week to 472,000, Labor Department figures showed earlier today.

Housing Crash Back in Full Swing

Please consider Pending Sales of Existing U.S. Homes Decreased 30% in May

The number of contracts to purchase previously owned houses plunged in May by more than twice as much as forecast after a homebuyer tax credit expired.

The index of pending home resales dropped 30 percent from the prior month, figures from the National Association of Realtors showed today in Washington. The drop was the biggest in records dating to 2001 and compared with a 14 percent decrease forecast in a Bloomberg News survey of economists.

The decline shows that the industry at the center of the financial crisis remains vulnerable in the absence of government support. A stabilization in housing will depend on gains in incomes and employment that may stem foreclosures and give Americans the confidence to start buying again.

“Demand will be pretty depressed in the next few months,” Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, said before the report. “We’re still going to have a big overhang of foreclosures. There’s potential for prices to slow down a lot more.”

Forecasts for the decline in pending home sales ranged from 4 percent to 25 percent, according to a Bloomberg News survey of 36 economists. Sales rose 6 percent in April.

Pending home sales were lower than the forecast of all 36 economists in the survey, proving once again at economists tend to be an overly optimistic lot.

Collectively, this data should be enough for anyone of sound mind to question the recovery. Nonetheless Chicago Fed’s Evans says ‘The recovery is definitely on’.

Clearly the key phrase in data analysis regarding the recovery is “of sound mind”.

Mike “Mish” Shedlock
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