- World trade and global GDP growth have weakened recently after climbing last year…
- …but the global PMI survey and fundamentals suggest they will regain momentum
- Initial jobless claims beat expectations, suggesting the US job growth will recover
The global economy has lost momentum over recent months
Global economic growth gained some pace during the course of last year after a very weak start. This trend was also reflected in world trade growth (see chart). It contracted at the start of 2014 before bouncing back strongly thereafter. The underlying trend reached peak growth rates of around 8% towards the end of last year. However, over recent months, world trade has slowed sharply, and we think global growth has also weakened.
The lowdown on the slowdown
So does this prove that the prophets of doom and gloom were right and that the global economic recovery has come off the rails? The short answer is probably not. Some of the momentum behind world trade growth during the course of 2014 probably reflected payback for the poor (weather-hit) start to the year, so maybe it was natural that some of it would fade. More importantly, just like last year, special factors have hurt economic growth. The US has experienced a second year of particularly bad weather in some regions. In addition, there have been strikes in the west ports of the country. Finally, China’s exports have been rather volatile. They contracted in January, dragging down world trade, but have since rebounded.
The case for a rebound
There are two good reasons to expect a rebound in global GDP and world trade growth going forward. First of all, survey evidence has generally improved over the last couple of months, especially for the dominant services sector, which reflects stronger final demand. For instance, the world all-industry PMI has clearly rebounded (see chart). It tends to lead world trade growth, suggesting it will follow in the coming months. Second, US fundamentals remain healthy. The balance sheets of US households and companies are in good shape. The fall in oil prices will support consumer demand in the US and the world’s other big economies. Finally, outside of the US, the key central banks are easing monetary policy, which is leading to an easing in global financial conditions.
US jobless claims consistent with strong labour market
Recent data confirm that March’s disappointing labour market report is likely only a temporary dip. The number of people filing new claims for jobless benefits rose less than expected last week to 285K. Meanwhile, the four week moving average, of jobless claims, which is less volatile, fell to its lowest level since 2000. Moreover, jobless claims have been on a downward trend since February. In fact, in March’s nonfarm payrolls report, the activities most affected were concentrated in weather-sensitive sectors, including construction, which declined the first time in a year and in accommodation and food services, which was the weakest since mid-2012.
Other reports support view of strong job market
Jobless claims are not the only data pointing to a strong labour market. February’s job openings, released earlier this week, climbed to 5.13 million in February. This was the highest rate of job openings since January 2001. The turnover, including voluntary separations, layoffs, and quits, was broadly unchanged compared to the previous month. Before the March labour market report, Fed policymakers saw broad-based improvements in labor market conditions. But they then already mentioned that they would like to see additional improvements. We think that the labour market will continue to strengthen supported by a return to above-trend GDP growth.