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Is Global Growth Losing Steam?

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Updated

US GDP revised slightly higher

The US economy grew slightly faster in the first quarter, revised data showed on Friday. Economic output advanced at a still-sluggish 0.8% annual rate, according to the US Bureau of Economic Analysis. Growth in the second quarter looks to be a bit more robust, with growth estimates running around 2.5%.

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Global growth losing steam

J.P. Morgan estimates its global composite purchasing managers’ index will decline to 51 in May when all the component parts are released. With the PMI at that level, the firm suggests that global growth would slow to just 1.8%.

Global growth losing steam

Market Realist – US growth rate is slumping

The graph above shows the annualized quarter-over-quarter GDP growth rate in the United States (SPY) (IVV). The second estimate for 1Q16 growth came in at 0.8%, slightly higher than the first estimate of 0.5%. Consumption continued to boost growth, and spending on homebuilding (XHB) increased more than expected. However, business investments fell faster than anticipated.

As you can see, growth has been declining over the last four quarters. That said, in the last few years, growth has been flat to negative in the first quarter.

Meanwhile, the payroll number for May was the lowest in more than five years, with 38,000 jobs added. This means that the growth rate may remain tepid. As companies get leaner, dwindling corporate earnings may be causing a slowdown in jobs growth.

The second graph shows the JPMorgan Global PMI (purchasing managers’ index) composite index, which is an indicator of the health of the global (ACWI) economy. A number above 50 suggests an expansion. The global PMI composite index stood at 51.1 in May compared to 51.6 in April.

The graph suggests that the global economy has been steadily deteriorating. We’ll look at this in more detail in the last part of this series.

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