The Purchasing Managers Index, or PMI, can hint at when an economy is heading towards a recession. The most recent developments in the China-U.S. trade saga seem to be pointing towards one for several economies around the world. Economists say an economic downturn may be closer than people think.
The manufacturing PMI gauges the performance of the manufacturing sector. Figures below 50 percent indicate the sector is generally contracting. The index for the U.S. in August read its lowest figure since 2016: 49.1 percent, which was down from 51.2 percent one month before. Factory production and new orders fell sharply last month and are now shrinking. U.S. manufacturers also cut jobs according to the report. Investors were dismayed by the data.
Stock prices, which had already fallen at the market's open, dropped further after the report's release on Tuesday.
"Yeah I mean clearly this feeds directly into this whole narrative about a recession in the U.S. coming sooner rather than later. We've seen that with the yield curve presenting that possibility and with a lot of investor concerns about the same. This just feeds into it in a very direct and pointed way," says Nick Colas, co-founder of DataTrek Research.
In the meantime, China's PMI fell two percentage points to 49.5 in August. And it's been under 50 percent since May.
Zhang Tao, deputy managing director of IMF, says, "Actually we have been saying that the biggest victim will be the global economy, which would be dragged down by this friction and tariffs. Therefore, we hope the relevant parties can conduct real communications and negotiations under a multilateral framework so as to find a sustainable solution and return to the framework. "
"In this way, a well-regulated, transparent, and fair trade system and framework will be achieved. It will benefit the world economy, including the economies of China and the U.S.", he added.
The United States and China imposed new tariffs on each other last weekend. Chinese Vice Premier Liu He met a delegation led by U.S. Senator Steve Daines and David Perdue in Beijing on Tuesday. Liu says China firmly opposes a trade war, which is not conducive to China, the United States, or the world.
Speaking of the great importance of U.S.-China relations, Daines and Perdue say they are not willing to see economic nor trade conflicts between the two sides, adding that they will continue to play positive roles in deepening mutual understanding and promoting the development of bilateral relations.