Today there are a myriad of economic statistics that only serve to confuse and obfuscate.   Frankly most can be ignored by those who are not involved in the day-to-day market activities.  However there are some statistics that serve as a bell-weather of economic activity that should not be ignored.  Among them is the manufacturing activity index.

This index measures the growth or contraction of one of the key elements of any economy: the manufacturing sector.   Over the past 18 months throughout the global economy there has been a consistent pattern of increasing manufacturing activity which has buoyed the general mood of investors and governments that economic expansion was well underway.

However this past two month (May-June) there has been a precipitous turn around in this index in virtually all major manufacturing countries.  In understanding this index it is important to focus on a reading of 50 as any number approaching that level or below it signals a contraction in industrial activity.  As a point of comparison the depth of the recession was in 2009.

In the United States the manufacturing index dropped to its lowest level in 22 months (since Sept 2009).  The index fell from 60.4 in April to 53.5 in May (expectations were for an index of 57.5).   In June this index made a slight improvement (subject to revision) to 55.3.

But this decline was not limited to the U.S.  In a surprising report, the Chinese manufacturing index fell to its lowest level in over 27 months as the June reading was 50.9 down from 53.0 in May.  This is a blow to the Chinese leadership already saddled with not only inflationary pressure but political unrest, and will ultimately require them to become more aggressive in their export activity.

Great Britain has also reported a significant drop in its index, showing a reading of 51.3 in June (the lowest level in 21 months or since October 2009).

Germany was also affected by this trend as the manufacturing index in June fell to 54.9 from 57.7 (that country's lowest reading in 17 months).  Expectations in Germany were for an index of 57.0.

The overall manufacturing index for the Euro zone (17 countries that use the Euro as their currency) declined to 52.0 (the lowest since December of 2009).

There is a significant cooling in global demand and a noticeable decline in economic activity brought about in part as the result of raising interest rates in order to battle inflationary pressures in many countries -- a partial by-product of American monetary policy.   Further, much of the previous gains in manufacturing were initiated by the necessity of restocking depleted inventories which are not being drawn down as quickly as expected due to the slowing of many economies.  Additionally the more forward looking elements of these manufacturing indices and consumer sentiment surveys point to further global softness ahead.

A good part of the rebound (to date) of the growth in the American manufacturing is due to exports, which will be in jeopardy as the global economy slows down.

While the stock markets have historically been a harbinger of future economic activity, thanks to Quantative Easing (in essence printing money) and a near zero federal funds rate policy of the Federal Reserve the world is awash in dollars seeking a home.  The stock and bond markets have thus been artificially inflated and are no longer reliable.  In fact the global prospects for sustained economic growth are becoming more cloudy by the day.