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. Factory Output Slowdowns Cast, Factory Output Slowdowns Cast