Why is this Chart Important?

When it comes to the overall economic environment, having insights into the current business cycle status can guide us in making more informed decisions. The MacroMicro Recession Probability and the MacroMicro Manufacturing Cycle Index are two indices that offer valuable perspectives on recession probabilities and short-term economic fluctuations. By combining these two indices, we could gain a comprehensive overview of the global economic situation.

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MacroMicro Recession Probability

The MacroMicro Recession Probability incorporates data from various aspects including consumption, employment, production manufacturing, finance, and raw materials. With a threshold of 50%, when the recession probability consistently exceeds 50%, there is a high likelihood of the global (including the U.S.) economy entering a recession. Conversely, when it remains below 50%, the probability of a global recession is generally low.

MacroMicro Manufacturing Cycle Index

The MacroMicro Manufacturing Cycle Index combines global manufacturing, retail, transportation, and trade-related data. Using 0 as the dividing line, this index indicates the prosperity and decline of the manufacturing industry. The manufacturing cycle occurs approximately every 3 to 4 years. Due to economic structure, most emerging market countries rely heavily on the manufacturing industry, making short-term manufacturing fluctuations likely to impact Emerging Markets (EM) economies. In contrast, economies primarily driven by the service sector, such as the United States, are typically less sensitive to manufacturing cycle fluctuations.

How to Combine Both Indicators?

When manufacturing undergoes brief cyclical fluctuations, these tend to be confined to emerging countries without escalating into a global recession. Examples include events such as the 2012 Eurozone crisis, the 2015 Emerging Market storm, and the 2019 China–United States trade war. In these instances, the MacroMicro Manufacturing Cycle Index drops below the 0 axis, signaling a downturn in manufacturing. On the other hand, when the MacroMicro Recession Probability remains below 50, the spillover effect on the global economy is relatively small. However, if there is a significant weakening in terminal consumption, as seen in events like the 2008 financial crisis and the 2020 COVID-19 pandemic, where demand decline leads both manufacturing and service industries into recession, the recession probability significantly rises above 50%.

Manufacturing Recovery is the Key in 2024

2023 presents us with a strong service sector and a weak manufacturing sector. We anticipate the service industry to maintain moderate expansion next year, while the manufacturing sector will return to an upswing, further recovering and lowering the recession probability. For those concerned about the economic trend in 2024, this chart is definitely worth your attention.

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