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Factory Output Slowdowns Cast A Dark Cloud Over Global Economy (#GotBitcoin?)

Slowdown in factory output worries policy makers at central banks. Factory Output Slowdowns Cast A Dark Cloud Over Global Economy (#GotBitcoin?)

Manufacturing is faltering in the U.S. and a number of key economies around the world, darkening the outlook for the global economy and increasing the likelihood that central banks will ease policy to provide support.

The Purchasing Managers Index for U.S. manufacturing activity declined to 50.1 in June, the lowest level in nearly a decade, according to a survey conducted by data firm IHS Markit and released Friday. A reading above 50 indicates growth, but the figure was down from 50.5 in May and followed other data showing U.S. manufacturing output has declined since the end of last year.

Meanwhile, manufacturing activity in Europe contracted in June, wrapping up the weakest quarter for the goods-producing sector in six years, IHS data showed Friday. A similar survey of Japanese manufacturers also published on Friday found activity was at its worst in three years.

U.S. manufacturers attributed the pullback to several factors, including escalating trade tensions, cooling global growth, slowing momentum after last year’s burst of investment and a tight labor market that is constraining production.

In Europe, economists are divided on whether the factory slowdown is largely a consequence of disruptions to trade and investment or a more short-lived pause after a long expansion.

The World Bank earlier this month lowered its forecast for global economic growth in 2019 to 2.6% from its January estimate of 2.9%, citing trade disputes and declining business confidence.

Both the Federal Reserve and European Central Bank signaled this week they are considering cutting interest rates if the outlook doesn’t improve.

“Manufacturing, investment and trade have been weaker,” Fed Chairman Jerome Powell said in a press conference Wednesday. “We’re seeing this all around the world.”

Several central banks around the world—including in India and Australia—have cut interest rates in recent weeks.

Central bankers worry that the longer the factory slowdown continues and the wider it spreads, the more likely it is to drag on other parts of the economy that remain relatively healthy.

In the U.S., several factors are contributing to slowing factory momentum.

United States Steel Corp. said Tuesday that, because “market conditions have softened,” it was idling two blast furnaces to reduce production amid declining manufacturer demand. Charlotte, N.C.-based Nucor Corp. , the largest U.S. steel producer, said it expected declines in two big markets this year: power transmissions and car production. “It’s just a natural slowdown after two years of very heavy investment,” Chief Executive John Ferriola told investors Thursday.

Office-furniture maker Steelcase Inc. said some U.S. customers are asking to delay deliveries because they can’t find the workers needed to finish construction of new offices.

Joseph DeAngelo, chief executive of HD Supply Holdings Inc., cited two factors that hurt the industrial distributor’s sales: “Many of our customers faced the shortage of skilled labor required to recover from weather delays,” he said on a earnings call last week.

European manufacturers expect tough times to continue, resulting from headwinds such as Brexit and the impact of recent trade disputes on Chinese demand for Europe’s exports.

“Conditions will remain volatile,” said Nicolas Peter, chief financial officer at German auto maker BMW AG . “For one thing, there is a lingering uncertainty over the future course of trade policies and the U.K.’s withdrawal from the European Union. We will also continue to monitor economic developments world-wide very closely.”

General Electric Co. , which bought Alstom SA’s energy business in 2015, said in May that it would slash up to 1,044 jobs in France due to falling orders world-wide.

For now, however, it isn’t clear whether feeble factory activity is dragging down the rest of the global economy. In the U.S., the services sector, which accounts for the bulk of the economy, continues to power forward. Unemployment is historically low and consumers are spending briskly, helping buttress the broader economy.

In the eurozone, the PMI for the services sector rose to 53.4 from 52.9 in May, hitting a seven-month high as low unemployment rates and accelerating wages helped support consumer spending.

Updated: 10-15-2019

Global Economy on Course for Weakest Growth Since Crisis

IMF lowers estimate for 2019 to 3% as international trade slows to nearly a standstill.

The global economy in 2019 is on course for its weakest year of growth since the financial crisis, weighed down by tensions that have slowed international trade to nearly a standstill.

Global growth is expected to slow to 3% this year, according to new estimates from the International Monetary Fund, down from an estimate of 3.2% in July. As recently as 2017, the global economy was growing at a 3.8% pace. The IMF attributed the sharp slowdown over the past two years primarily to rising trade barriers that have stunted manufacturing and investment around the world.

“At 3% growth, there is no room for policy mistakes and an urgent need for policy makers to cooperatively de-escalate trade and geopolitical tensions,” Gita Gopinath, the IMF’s chief economist, said.

As the year has progressed, trade has slowed more sharply than forecasters had expected earlier in the year. The IMF’s projections for 2019 are based off data collected through Sept. 30—three-quarters of the way through the year—reflecting reports from around the world showing a sharp decline in manufacturing activity, investment and trade.

The IMF now forecasts that world trade volumes will expand by just 1.1% this year, less than half the growth rate of a July estimate of 2.5%. In 2017, trade was a bulwark for the global economy, expanding by 5.7%, before slowing to 3.6% in 2018.

Mounting signs of a slowdown have alarmed global economic policy makers, many of whom are traveling to Washington this week for the annual meetings of the IMF and World Bank. At the top of their agenda is what can be done about a global-growth slowdown.

“Global trade growth has come to a near standstill,” said Kristalina Georgieva, the new director of the IMF, in her inaugural speech last week in Washington. “Even if growth picks up in 2020, the current rifts could lead to changes that last a generation—broken supply chains, siloed trade sectors, a ‘digital Berlin Wall’ that forces countries to choose between technology systems.”

The IMF’s new forecasts show slower growth in 90% of the world.

Forecasts for the U.S. were cut by 0.2 percentage point to 2.4% annual growth in 2019; Euro area forecasts were cut 0.1 point to 1.2%; China’s forecast was lowered 0.1 point to 6.1%.

The IMF has long expected a modest uptick in global growth in 2020, but that forecast was also lowered 0.1 percentage point to growth of 3.4%. The forecast for a turnaround, however, is “not broad based and is precarious,” the IMF said in its report.

Slowing Growth

World output growth of 3% in 2019 would be the weakest since the global financial crisis.

Much of the solution, in the IMF’s framework, was in the hands of trade ministers and heads-of-state, rather than the finance ministers and central bankers who attend the IMF meetings.

The Trump administration last week struck a tentative deal in principle with China, but the two countries retained tariffs on most of their bilateral trade. Previous truces have eventually given way to more tariffs. Tensions have recently escalated with Europe as well, with the U.S. set to impose duties this week on trade with the European Union.

Ms. Gopinath, the IMF’s chief economist, cited concern that many central banks have already taken action to try to offset the damage from the trade tensions, but this hasn’t stopped the slowdown.

“It is important to keep in mind that the subdued world growth of 3% is occurring at a time when monetary policy has significantly eased almost simultaneously across advanced and emerging markets,” Ms. Gopinath said. “With central banks having to spend limited ammunition to offset policy mistakes, they may have little left when the economy is in a tougher spot.”

Updated: 11-1-2019

Global Factory Slowdown Takes Toll On Jobs

Surveys of purchasing managers show factory output continuing to weaken in many parts of the world.

Factory output continued to weaken in many parts of the world during October, according to surveys of purchasing managers, though there were signs of mild improvement in the U.S.

Over the past 18 months, factories have been hit by softening demand for their exports and slowing investment spending as businesses opted to wait out a lengthening period of unusually high uncertainty about future trade relations between the world’s leading economies.

Surveys of purchasing managers released Friday indicated the sector continued to cool in October in the U.K. and much of Asia, although there were some signs that the pace of contraction has started to level off.

Factory activity in the U.S. declined in October for the third straight month but at a slower pace than in September. The Institute for Supply Management’s manufacturing index rose slightly to 48.3 from September’s 47.8. Readings above 50 denote expansion, while those below 50 are a sign of contraction.

Timothy Fiore, chairman of the ISM’s Manufacturing Business Survey Committee, said the numbers suggested the slide in American manufacturing was nearing its end. The recently-ended strike by General Motors workers and the continued uncertainty around Boeing Inc.’s MAX passenger jet could have held down the numbers, he added.

“This is a pretty decent month of October,” he said.

Manufacturing orders for export in the U.S. grew modestly in October, which could reflect a perceived trade war tensions, he said.

There were still reasons for concern about the months ahead in the U.S. report. Roughly 40% of comments in October were related to the need to reconsider and perhaps reduce employment levels, up from 29% in September, Mr. Fiore said. That could spell declines in manufacturing employment in the coming months.

U.S. manufacturing employment fell by 42,000 in October, the Labor Department said, due to the GM strike. Excluding auto industries, the sector added jobs on the month.

An IHS Markit manufacturing survey for the U.S. released Friday showed slight expansion last month.

Weaker global growth is weighing on the U.S. economy, and was cited by Federal Reserve Chairman Jerome Powell as a factor behind the central banks’s decision Wednesday to cut its key interest rate for the third time this year. A survey of U.S. purchasing managers to be released later Friday is expected to record a decline in activity during October, albeit at a slower pace than in the previous month.

There were mixed signals from China, the world’s second-largest economy, where a measure of activity compiled by data firm IHS Markit pointed to an acceleration in growth, a day after an official measure pointed to a steeper decline in activity.

But even the more upbeat assessment pointed to jobs cuts, a path manufacturers also decided to take in South Korea, Asia’s fourth-largest economy and a victim of trade conflicts.

Other surveys by IHS Markit signaled the end of a near four-year expansion of manufacturing activity in Vietnam, while Japan, Indonesia, Taiwan and Malaysia each reported declines in activity.

India’s manufacturing sector continued to grow, but at the slowest pace in two years.

“Weakening demand had a domino effect in the manufacturing industry, knocking down rates of increase in production, employment and business sentiment,” said Pollyanna de Lima, an economist at IHS Markit.

October surveys for much of the eurozone won’t be released until Monday, but there were indications of continued weakness in Europe. Activity again declined sharply in the Czech Republic, a country that has close industrial ties to Germany, the continent’s manufacturing powerhouse. In the Netherlands, which has so far escaped the worst of the slowdown, activity increased at the slowest pace since mid-2013.

And in the U.K., activity declined again in October, although less sharply than in the previous month. Faced with continued uncertainty about when and in what way the country will leave the European Union, factories cut their payrolls for the seventh straight month.

“As the manufacturing sector remains in the twilight zone, wondering whether to stock or destock, hire new staff, look for new business or batten the hatches once again, it looks like a scary end to the year,” said Duncan Brock, group director at the U.K.’s Chartered Institute of Procurement & Supply, a professional association for purchasing managers.

There are signs elsewhere that the manufacturing slowdown is beginning to take its toll on other jobs markets whose strength has been one of the key supports to global growth. Japan’s unemployment rate rose in September, while the number of people without work rose in the eurozone, even as the jobless rate was unchanged.

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