It was fun while it lasted.
After several strong quarters, the global economic recovery appears to be sputtering. In particular, the industrial sector, a key driver of the bounce-back from a historic worldwide recession, looks to be fraying.
"People need to seriously consider the scenario where global industrial growth, once again, starts to throttle back — because it's not that far away," said Lakshman Achuthan, managing director of the Economic Cycle Research Institute.
A report on U.S. durables goods orders due on Wednesday should give fresh insight into manufacturing demand after an unexpected plunge in the Philadelphia Federal Reserve Bank's index of May factory activity caught investors by surprise.
Economists are looking for a 2.2 percent decline in durables orders for May, according to a Reuters poll. A closely watched measure of non-defense orders excluding aircraft, seen as a proxy for business investment, is projected to inch up just 0.2 percent.
"This week will bring what is likely to be another round of discouraging news, with May's durable goods orders data pointing to further evidence that the manufacturing recovery is losing momentum," said John Higgins, economist at Capital Economics.
The deterioration in U.S. manufacturing is being exacerbated by a slowdown in Japan, which is essentially in recession in the wake of a devastating earthquake and tsunami.
Japan's pullback has had a perceptible effect on global production, especially in the automobile sector. A report due on Tuesday on Japanese exports is expected to show they plunged 12.4 percent in the year to April. Japan is also set to post a rare trade deficit for April.
Still, not all analysts share in the pessimism, with some believing the soft patch will be fleeting.
"The market is now underestimating the resilience of the economic recovery," argues Eric Green, economist at TD Securities.
Japan's central bank held off on further monetary easing this past week, a sign that it expects a relatively quick rebound from the disaster-induced slump.
Has the global recovery run out of gas? Economists are forecasting a decline in industrial production by 2.2%. Japan's post earthquake economy is definitely having an impact.
The more relevant question is will industrial production continue to stagnate or decline in the summer months. That would be a far more disturbing turn of events for the global economy.
Especially since it would be at a time when Europe deals with structural deficits and the United States deals with municipal budge deficits of size.
For now though, I would call it a crack in the armor.
Hope all is well.
J.D. Rosendahl, Rosey