WORLD ECONOMY Global factory activity was mixed in August, suggesting cost pressures are easing

A worker checks machines at a factory in Higashiosaka, Japan June 23, 2022. REUTERS/Sakura Murakami

WASHINGTON/LONDON, Sept 1 (Reuters) – US manufacturing grew steadily in August, but factory activity in China, the euro zone and the UK fell as Russia’s war in Ukraine and China’s zero-COVID-19 restrictions hit businesses continue to hurt, as polls showed on Thursday. Although there were signs, cost pressures were beginning to ease.

The general weakness in global manufacturing activity, adding to signs of sluggish demand in many countries, added to the headache for companies already suffering from prolonged supply constraints.

Major central banks are expected to continue aggressive rate hikes in a bid to tame inflation, dampening optimism also with growing fears of a global slowdown.

The Institute for Supply Management (ISM) said on Thursday that its index of US factory activity was unchanged at 52.8 for the past month, although that’s still the lowest reading since June 2020, when the sector recovered from a COVID-19 outbreak -19 pulled out caused burglary. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the US economy.

But the forward-looking new orders sub-index rallied to 51.3 last month from a reading of 48.0 in July, ending two straight monthly declines, and backlogs rose, suggesting factories in the world’s largest economy are recovering world will continue to hum for a while. Continue reading

US manufacturing is showing resilience despite a shift in spending back to services and a drop in business confidence amid soaring interest rates.

There was also some relief for US factories grappling with rising costs, as weaker global demand has the side effect of easing price pressures. A measure of wholesale prices paid by manufacturers fell to 52.5 from 60.0 in July, the lowest since June 2020.

Elsewhere, input prices in China and Taiwan fell for the first time since May 2020. South Korean manufacturers recorded the slowest increase in input prices in 19 months in August, and the average input cost for Taiwanese commodity producers fell for the first time since May 2020.

In the euro zone, the purchase price index remained well above its long-term average, but fell to its lowest level since the beginning of last year.

However, this did little to ease concerns about a slowdown in global growth.

“We are forecasting a recession in the eurozone and the United States next year. Whether that expands into a global recession remains to be seen,” said Peter Schaffrik of the Royal Bank of Canada.

SHRINK MANUFACTURING IN EUROPE, ASIA

Outside the United States, signs of tension were intensifying. Manufacturing activity across the euro zone contracted for a second month in August, while weak demand meant factories were unable to sell as much as they were producing and inventories of finished goods were building at a record pace.

The final S&P Global manufacturing purchasing managers’ index (PMI) for the euro zone fell to 49.6 in August from 49.8 in July, further below the 50 mark that separates growth from contraction.

In the UK, outside the European Union, factory production and new orders fell the most in more than two years amid rising uncertainty about rising inflation and the risk of a recession at home and abroad.

China’s private caixin manufacturing PMI contracted in August for the first time in three months as weak demand, power shortages and fresh COVID-19 flare-ups disrupted production. Continue reading

The unexpectedly weak read reflected China’s official PMI released on Wednesday, which was also below the 50-point mark.

“China’s containment of the pandemic and geopolitical tensions with the United States continue to disrupt supply chains. Rising inflation is also hurting domestic demand across Asia,” said Toru Nishihama, chief economist at the Dai-ichi Life Research Institute in Tokyo.

The export powers also reported weakness. Japan’s factory activity grew at its slowest rate in nearly a year in August, while South Korea’s contracted at its fastest pace in two years, PMIs for both countries showed.

In Germany, Europe’s largest economy and a major exporter, manufacturing contracted for the second month.

Manufacturing activity in Taiwan also deteriorated sharply, with both production and orders falling at the fastest pace since the first wave of the pandemic in May 2020.

au Jibun Bank Japan’s final manufacturing PMI fell to 51.5 in August from 52.1 in the previous month, marking the weakest growth rate since September 2021. read more

South Korea’s PMI fell to 47.6 in August from 49.8 in July, staying below the 50 line for a second month and hitting the lowest level since July 2020. read more

India’s factory activity continued to grow robustly in August, partly due to a boost in output as input cost inflation eased, the country’s PMI showed. Continue reading

Southeast Asia remained a bright spot in the region, with manufacturing activity growth accelerating in Indonesia, the Philippines and Thailand, while Malaysia’s growth slowed slightly, PMIs showed.

Reporting by Lucia Mutikani, Jonathan Cable, Leika Kihara; writing by Lindsay Dunsmuir; Edited by Sam Holmes, Hugh Lawson and Andrea Ricci

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