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Factory data dampen global hopes for 'soft landing'

Economy Jul 01, 2022 11:11AM ET
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© Reuters. FILE PHOTO: A bicycle rider rides past a factory at Keihin industrial zone in Kawasaki, south of Tokyo, Japan, August 18, 2016. REUTERS/Kim Kyung-Hoon

By Jonathan Cable and Leika Kihara

LONDON/TOKYO/WASHINGTON (Reuters) - Global manufacturing struggled in June as higher prices and a darker economic outlook left consumers wary of making purchases, while China's strict COVID-19 lockdowns and Russia's invasion of Ukraine added to supply chain disruptions, surveys showed.

From the United States to the euro zone, activity at factories slowed to levels last seen during the initial wave of the pandemic. They were the latest signs pointing to the risk of all-out recession in the global economy, coming after the world's top chipmakers said they were facing waning demand and as central bankers warned of painful interest rate hikes ahead.

"Between central banks digging their heels in to counter inflation and growing fears there is absolutely no path to a soft landing for the global economy, there are few, if any, places to hide," said Stephen Innes at SPI Asset Management.

The slowdown in the United States was accompanied by declines in new orders and employment. The Institute for Supply Management's index of national factory activity dropped to 53.0 last month, the lowest reading since June 2020, from 56.1 in May. Its measure of new orders contracted for the first time in two years, while employment remained weak.

The picture was equally gloomy in the euro zone, where manufacturing output also slowed. S&P Global (NYSE:SPGI)'s manufacturing Purchasing Managers' Index (PMI) fell to 52.1 in June from May's 54.6, its lowest level since August 2020.

"We doubt the outlook for manufacturing will improve any time soon," said Andrew Hunter, a senior U.S. economist at Capital Economics. "While the latest PMI surveys from China suggest manufacturing activity there is rebounding rapidly as lockdowns are lifted, that acceleration is unlikely to be sustained."

Earlier, surveys showed China's factory activity recovering in June, though a slowdown in Japan and South Korea, as well as a contraction in Taiwan, highlighted the strain from supply disruptions, rising costs and persistent material shortages.

At a meeting of central bank chiefs in Portugal this week, Federal Reserve Chair Jerome Powell and European Central Bank President Christine Lagarde made it clear that bringing down high inflation could hurt badly but must be done quickly to prevent rapid price growth from becoming entrenched.

Evidence from the real economy suggests that higher prices are already biting into consumer and corporate demand.

Micron Technology Inc (NASDAQ:MU) sounded the latest warning from the world's chipmakers, forecasting worse-than-expected revenue for the current quarter, noting that the market had "weakened considerably in a very short period of time."

Facebook-owner Meta Platforms Inc has cut plans to hire engineers by at least 30% this year, CEO Mark Zuckerberg told employees on Thursday.

"If I had to bet, I'd say that this might be one of the worst downturns that we've seen in recent history," Zuckerberg told workers in a weekly employee Q&A session, audio of which was heard by Reuters.

'TUG OF WAR'

A Reuters poll of economists last month found there is a 40% chance of a recession in the United States over the next two years, with a 25% chance of it happening in the coming year.

"There's hope China's economy will pick up after a period of some weakness. But now there's a risk of slowdown in the U.S. and European economies," said Yoshiki Shinke, chief economist at Japan's Dai-ichi Life Research Institute.

"It will be a tug of war between the two, though there's a lot of uncertainty over the global economic outlook."

China's Caixin/Markit manufacturing PMI rose to 51.7, marking the first expansion in four months and well above analysts' expectations for a reading of 50.1.

The Caixin survey, which focused on export-oriented and small firms in coastal regions, follows official data showing the country's factory and service sectors snapped three months of activity decline in June.

China's economy has started to chart a recovery path out of the supply shocks caused by its strict lockdowns, though risks remain such as diminished consumer spending and fear of a further wave of infections.

Meanwhile, the final au Jibun Bank Japan Manufacturing PMI slipped to 52.7 in June from 53.3 in the previous month.

South Korea's S&P Global PMI fell to 51.3, dropping for a second straight month, reflecting supply constraints and a truckers' strike.

Separate data showed South Korean exports, seen as a proxy for global trade because its manufacturers are positioned in many parts of the world supply chain, growing at their slowest pace in 19 months.

India's PMI showed factory output expanded at its slowest pace in nine months, as elevated price pressures restricted demand and output.

Factory data dampen global hopes for 'soft landing'
 

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Comments (3)
Brad Albright
Brad Albright Jul 01, 2022 12:02PM ET
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The slowing growth this article describes is still growth, exactly what you'd want to see in a soft landing.
Co Gonz
Co Gonz Jul 01, 2022 12:02PM ET
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Wrong.. you should study recent soft landings.. fed stepped in fast, inflation wasn’t as high which helped them crush inflation and hit the gas back. Growth with high inflation, and rates creates stagflation which is where you are
me ish
me ish Jul 01, 2022 11:16AM ET
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stocks to the moon! Bad news is good news for the markets - FED will ease off on its tightening and may even start QE again as inflation comes down (a transitory drop in inflation) as the slowing economy pretends to do the job of the FED - and then inflation will run higher even with a stagnating economy and the FED will be forced to tighten again even in a recession - that's what happens when you print trillions if fresh USD over a two year time frame with no increase in GDP - utter fools!!
First Last
First Last Jul 01, 2022 11:16AM ET
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Should've increased tax on the rich instead
Co Gonz
Co Gonz Jul 01, 2022 11:16AM ET
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First Last top 1% pay almost 40% of total sharehttps://www.thebalance.com/breakdown-of-who-pays-most-taxes-4178924
Todd Gray
Todd Gray Jun 30, 2022 11:40PM ET
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This article describes nothing new, and it's entirely predictable during times like these. Markets are likely to bullwhip like mad on supply and demand rebalancing for several years as the Fed likely raises and lowers base rates as needed. This is a 1929 event, which is very different from anything we've known.
Brad Albright
Brad Albright Jun 30, 2022 11:40PM ET
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If it's a 1929 event, it is not different from anything we've ever known.
First Last
First Last Jun 30, 2022 11:40PM ET
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This news article should describe what's going on now.  New or not is immaterial.  I look for "new" in entertainment.
 
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