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Economists and central bankers have been wondering for months how long demand can hold up under the growing pressure from high interest rates. Based on the deepening pessimism of the world’s purchasing managers, deep cracks in that dam of resilience have already formed – and may soon burst.

Purchasing managers’ indexes – PMIs – are monthly gauges of business activity, derived from surveys of supply managers at private-sector businesses. These surveys, conducted in countries around the world, have long served as effective and timely indicators of the prevailing economic trend.

Standard & Poor’s global manufacturing PMI, comprising data from 31 countries, came in at 48.7 for July – the 11th straight month below 50, which is the midpoint delineating expansion from contraction. The reading indicates that global manufacturing activity has been slowing for nearly a year, and the decline is still deepening. Typically, a contracting manufacturing PMI is a strong indication of a slowing global economy.

Notably, the PMI has turned negative in China, the world’s leader in manufactured goods. PMIs are slumping badly across Britain and the euro zone. Readings in the United States and Canada have also dipped into contraction.

S&P noted that its subindex for manufacturing output slipped to 49.0 in July, indicating a second straight month of outright declines in production. Outside of the COVID-19 pandemic, that’s happened only one other time in the past decade.

“Although the rate of decline signalled remains only modest, any contraction of global production is a rare occurrence,” S&P said.

For an export-intensive country such as Canada, what is perhaps most worrisome is the rapid deterioration in the export component of the index. The reading for new export orders was a bleak 46.4 in July, the lowest this year, and the 17th consecutive monthly contraction.

“This represents the worst prolonged period of global trade decline since the [2008-2009] global financial crisis,” S&P said.

That erosion has become apparent in Canada’s trade data.

Statistics Canada reported this week that the country posted its biggest monthly deficit in goods trade in nearly three years in June. Exports slumped 2.2 per cent from May, their fourth decline in five months; on a year-over-year basis, June exports were down more than 12 per cent. While much of that is tied to weaker oil prices compared with last year, export volumes have generally been deteriorating since January.

Imports aren’t doing great, either – down 0.5 per cent month over month, and 2.3 per cent lower than a year earlier, evidence of Canada’s own slowing economy. But in foreign markets, demand for Canadian goods is in an even faster retreat.

The PMI trend suggests that export demand is likely to be pretty tepid in the coming months – and, by extension, will serve as a serious drag on the Canadian economy.

“After being a surprisingly strong positive contributor to growth in the second half of 2022 and the first quarter of this year, net trade appears to have turned into a slight drag on the economy in the second quarter,” Canadian Imperial Bank of Commerce economist Andrew Grantham said in a research note last week. “This will leave overall growth increasingly reliant on domestic demand, and in particular consumer spending, the resilience of which appears to be slowly cracking under the pressure of higher interest rates.”

One of the key themes of the global economy over the past year is that the sharp increase in interest rates has been quite successful in slowing goods consumption, but stubbornly ineffective in suppressing consumers’ appetite for services. A look at services PMIs around the world does, indeed, show that they have held up better than the manufacturing gauges. But most of the world’s services PMIs were in decline in July, signalling that growth in services, while still positive, is broadly slowing.

In a report Wednesday, Mr. Grantham and fellow CIBC economist Katherine Judge noted that services spending in Canada has recently stalled, “at a level still well below its pre-pandemic trend.” Meanwhile, the pressures of high interest rates and elevated debt are increasingly weighing on consumers. Credit card debt has risen above prepandemic levels. Consumer insolvency proposals were up nearly 30 per cent in the second quarter from a year earlier.

“Cracks are starting to show,” the economists said. They predicted that consumer spending would show “little growth over the balance of 2023 and into 2024.”

Between the global indications of slumping trade demand, and the weakening signs for domestic consumer demand, the math simply doesn’t add up to much growth in the Canadian economy over the next several months. And the headwinds aren’t likely to ease in 2024, as more mortgages come up for renewal at greatly increased interest rates.

Last month, the Bank of Canada predicted that gross domestic product would average a tepid 1-per-cent annualized growth rate over the second half of this year and the first half of 2024. Some economists are watching the trends and wondering if that’s optimistic. CIBC’s forecast for the next four quarters, for instance, shows average annualized growth of just 0.4 per cent.

A Canadian recession still isn’t the most likely scenario on economists’ books. But with global PMIs slumping, export prospects weakening and consumers running out of runway, the word is starting to get kicked around again. The fabled soft landing is far from a sure thing.