Taking Pulse Around the Globe

Where Economic Activity is Trending

On Monday, U.S. Manufacturing data for November came in better than expected. The ISM Manufacturing survey is a monthly survey conducted by the Institute for Supply Management (ISM) which polls purchasing managers across the country in five areas: new orders, production, employment, supplier deliveries, and inventories. The November figure rose 200 bps m/m, and new orders rose 330 bps m/m. As a reminder, readings above 50 indicate an expanding manufacturing sector, and below 50 indicate a contracting sector.

As mentioned, the new orders index expanded m/m and returned to expansion in November at 50.4. Importantly, prices fell 450 bps points compared to October – a good signal that inflation is receding. This is a good combination and signals that the manufacturing economy is improving – above and beyond what we have discussed endlessly: the artificial intelligence, data center, power and grid revolution. While manufacturing is just 10% of U.S. GDP, the multiplier effect is real; for every one job created in manufacturing, the economy produces seven jobs around it. 

Chart 1: Where the Manufacturing Economy Grew in November^[1]

Is the Rest of the Globe Experience Similar Activity as the U.S.?

U.S. manufacturing data has been weak over the past eight quarters but is now seeing signs of a rebound. Around the world, data paints a similar picture but with global stimulus set to rebound, we expect the data to improve albeit gradually and not to the extent that the U.S. is likely to see. We are simply in better shape from onshoring/reshoring and grid repair opportunities. Companies want to leave China and come to the U.S., but also to other places around the world such as India, which is another likely beneficiary. We will keep an eye on the data around the world which would be a nice tailwind in 2025.

For perspective, global manufacturing data in 2024 is averaging 49.4, just shy of the 50-reading indicating expansion. Comparatively, global manufacturing data averaged 49 in 2023 and 48.7 in 2022, so the data has been improving over the last two years. Services have been on a tear, averaging 53.1 globally this year and 57 in the U.S. alone. The U.S. is the bright spot in services with a nearly 58 reading across the last two months. Combining manufacturing and services data, the total global composite is averaging 52.3 this year, a positive reading for economic activity around the globe. 

Similar to the U.S., many countries are experiencing contracting manufacturing activity. In 2024, manufacturing data in Europe is averaging 43.8, six points below the U.S. The United Kingdom, Germany, France, and Italy are just a few with average manufacturing readings below 50 this year. The data flips when looking at the Asia Pacific region, with China, India, and Taiwan all averaging above 50 this year; India is experiencing the greatest expansion across manufacturing with readings averaging 56.5 in 2024. India remains one of our favorite long-term themes; it is the fastest-growing country in the world with the largest population and surging global investment.

Overall, we see a manufacturing renaissance on the horizon. Companies like Eaton (ETN), Quanta Services (PWR), Rockwell Automation (ROK), and more have billions of dollars in backlogs for projects consisting of power grid enhancement, data centers, and the buildout of utility infrastructure. Last quarter, we learned from ETN that 95% of its portfolio is in growth mode heading into 2025 and data center demand grew 35% y/y. ETN’s announced megaprojects (infrastructure projects valued over $1 billion) are worth $1.8 trillion with just 16% currently in progress. Its backlog of megaprojects is up 30% y/y, with more records to be hit in 2025. Capital expenditures from the hyperscalers will not be slowing anytime soon, and the companies taking on these projects will benefit. We believe the artificial intelligence buildout, enhanced U.S. power grid, and new infrastructure initiatives have yet to be fully felt across the economy.

Chart 2: U.S. Manufacturing Data Has Much Room to Return to the 10-Year Average^[2]

2024 Black Friday Data

Shifting to the consumer economy, holiday shopping at retailers last week rose 3.4% y/y, according to MasterCard data. Americans spent $10.8 billion online last week during Black Friday, 10% more than last year’s $9.8 billion.^[3] In-store shopping was flat to up 1%. We do not care where consumers spend, just that they do. 69% of all Black Friday purchases came from mobile devices, up from 68% last year.^[4] Relative to 2023, health and beauty stores saw the largest decline with traffic down 7.2%. Home and jewelry stores also saw contracting foot traffic as well, but apparel and footwear store traffic improved, up 0.4% and 1.3% y/y respectively.

There are winners and losers in retail: Walmart (WMT), Costco (COST), and Amazon (AMZN) are winners. Dick’s Sporting Goods (DKS), Deckers (DECK), On (ONON), and Gap (GAP) have also participated in the momentum. The off-pricers have been strong for years and will continue to lead as consumers are always looking for bargains, TJX Companies (TJX), Ross Stores (ROST), and Burlington Stores (BURL). Perhaps Target (TGT) will get its act together; they do not have a traffic problem (which rose 2.4% last quarter) but do have a mix towards more discretionary items.

Holiday spending is projected to grow by 8% this year to an average of $1,779 per person, and the trend of services over goods continues; spending on experiences is expected to grow 16% y/y, with gift spending relatively flat at -3% y/y. We will be watching consumer data throughout the holiday season for any surprises but expect solid demand over the coming months.

Stephanie Link’s TV Schedule:

Sources:

^[1] Source: Institute for Supply Management. As of December 2, 2024.

^[2] Source: FactSet. As of December 2, 2024.

^[3] Source: Retail Dive. As of November 25, 2023.

^[4] Source: NPR. As of December 1, 2024.

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