Hitherto, an uptick in manufacturing activity (captured by Purchasing Manager Indices) in developed markets such as the EU and the US signalled a corresponding boost for exports out of Asia.

But something in Deutsche Bank’s predictive model, which held up for 15 years, has changed, and Chief Economist Taimur Baig is puzzled: he has to contend with a rather large forecasting error just thrown up by the model.

Asian exports appear to have lost their traditional sync with US/EU manufacturing/demand indicators, according to data through July.

disconnect PMI

weak-import cycle PMI

The blip in the US Q1 GDP was apparently not sufficient to account for the anomaly, and Baig says it could be one of three factors.

PMI: A rebound in US manufacturing that did not affect wages, hence consumption

A dramatic upturn in US manufacturing that reflected in the PMI statistics is yet to have a beneficial impact on real wages in the economy. Besides, hiring is skewed in favour of contract workers rather than permanent employees, resulting in job insecurity and curtailed spending.

“Consequently PMI gauges have picked up, but without the typical boost for employment, income, and consequently consumer demand for goods,” says Baig. Hence we see a manufacturing recovery in the US minus the accompanying consumer demand, leading to lower imports from the traditional Asian exporting countries.

Here are charts that reflect Baig’s point on the turnaround in manufacturing but persistent low real wages in the US.

us-ism-mfg-pmi PMI

US-real-hourly-wage-earnings-growth-yoy PMI

“Comparing the first half of 2014 with the first half of 2013, real (inflation-adjusted) hourly wages fell for workers in nearly every decile—even for those with a bachelor’s or advanced degree,”says Elise Gould, Senior Economist and Director of Health Policy Research, Economic Policy Institute in this August 2014 article.

PMI: The shale gas and oil boom

One of the factors that boosted US manufacturing is the abundant domestic supply of oil and gas following the shale energy revolution. “Surging shale gas and oil production has reduced imports, lowered energy costs, and revitalized long dormant segments of manufacturing,” comments Baig, and indicating that it could be the trigger for a tilt towards domestic manufacturing in preference to off-shoring.

“Since 2008 we have increased crude oil production by 30% and since 2005 natural gas production by 34% – an accomplishment that most energy experts thought impossible a few years ago,” says Energy Tomorrow (see charts below)

us-gas-oil-prod PMI

PMI: Trade restrictions on the rise

A third and worrisome reason could be the steady rise in trade restrictions imposed by G20 members. “Rising protectionism is an unambiguous negative for Asian exporters,” says Baig.


“1,185 trade restrictive measures have been recorded since October 2008, with only 251, or roughly one-fifth, of these having been removed by mid-May 2014 making the total number of measures still in place 934 — up by 78 from the end of the last reporting period…G-20 members put in place 112 new trade-restrictive measures during the period mid?November 2013 to mid-May 2014.”

wto-restricitons PMI

Given the currently intractable nature of these factors inhibiting Asian exports, their forecasts are likely to be under a cloud.