Data Distortions One Way Or Another

Back in October, we noted the likely coming of two important distortions in global economic data. The first was here at home in the form of Mother Nature. The other was over in China where Communist officials were gathering as they always do in their five-year intervals. That meant, potentially:

In the US our economic data for a few months at least will be on shaky ground due to the lingering economic impacts of severe hurricanes. In China, the potential for irregularity is perhaps as great, though it has nothing to do with the weather. In a little over a week, Communist Party officials will gather for their 19th Party Congress.

The temptation may exist to deliver a somewhat better economic picture than has been the case. The government spent a whole lot in resources betting on if not straight economic growth by now than at least a plausible path to it. So far in 2017, China’s economy, as the global economy, has not come close to living up to expectations.

The specific reason for writing all that was China’s official manufacturing PMI. The National Bureau of Statistics had reported that day a rise to 52.4. Released just ahead of the 19th Party Congress, though a relatively low level for China it still represented a pleasant-sounding 5-year high.

And, predictably, it was taken that way particularly in the Western media that presumes this globally synchronized growth. Since that simply cannot occur without China’s participation, if not emphasis, the hype was strong. That particular PMI number, however, was dubious to begin with.

Four months further on, the manufacturing PMI has dropped in February 2018 to nearly 50 again. From 51.3 in January the current estimate is just 50.3, registering both the largest decline in years as well as the lowest level going back to the end of the last downturn in the middle of 2016.

We have to be careful given China’s Golden Week situation. Government officials have already suggested that the late Lunar New Year in 2018 as compared to 2017 (it fell in both January and February last year) may have distorted this particular reading. That may be the case, or it may have had a partial effect, but if it is it would be the first time.