Manufacturing is slumping across the globe as confidence in the recovery ebbs and Europe’s troubles ripple through other economies.
Fresh data released Wednesday show manufacturing activity stalling in the United States, declining in Europe, and close to contracting in emerging economies such as China.
Purchasing managers index (PMI) readings suggest the global recovery is faltering, putting more pressure on governments and central banks for new ways to stimulate growth. Nonetheless, the U.S. Federal Reserve held back from any new measures, and the focus shifts Thursday to the European Central Bank.
“When we have a broad-based, round-the-world global slowdown, the manufacturing sector, which is the trade-oriented sector, is going to get hit the hardest, and that’s what we’re seeing, a global deceleration in growth,” said Craig Alexander, chief economist at Toronto-Dominion Bank.
The PMIs released Wednesday are based on the responses of managers at large manufacturing companies to questions about production, new orders, supplier deliveries, inventories and employment. The 50 mark separates expansion from contraction, and the latest results painted a bleak global picture.
July’s reading of 48.9 in the United States by the Institute for Supply Management marked a second consecutive monthly decline, while the euro zone registered a three-year low of 44 in the index reported by Markit. Germany, Europe’s powerhouse, measured 43, marking its steepest contraction in more than nine years.
Chinese factories clocked in at 50.1, according to official numbers, barely eking out growth and affected by softer export demand in Europe.
At home, a measure by Royal Bank of Canada showed manufacturing slipping to 53.1 from 54.8 in June, indicating a slowing pace of growth.
“The global slowdown has been deeper than we thought at the beginning of the year,” said Robert Kavcic, an economist at Bank of Montreal.
“China has eased [monetary policy] and the ECB should take a more aggressive tack tomorrow.”
Canadian Oren Nutik has witnessed the decline at Chinese factories first-hand.
A few years ago, he struggled for attention from the Chinese manufacturers he hoped would produce power converters and battery chargers designed at his North Carolina-based company, Majorpower Corp.
Now, the same manufacturers have down time and are calling him for business, said Mr. Nutik, who also has a distribution operation in Montreal.
“We usually have to go and visit and scream and look for attention, and now the attention is happening on its own,” he said. “It definitely hints at the economy [in China].”
The troubles in the United States may be particularly worrisome, given Canada’s reliance on that market.
“The [U.S.] manufacturing index is not quite pointing to recession yet, but a second straight month in negative territory is not a good signal,” said James Marple, a senior economist at Toronto-Dominion Bank.
Paula Barros, marketing manager at New Hamburg, Ont.-based Ontario Drive and Gear Ltd., said U.S. sales of his company’s off-road vehicles have dropped to 200 units in the past year, compared with previous years’ sales of between 300 and 500 units.
Slowing global demand will also affect commodity prices in Canada.
Crude and copper prices climbed Wednesday, however, signalling that the poor PMI reports were likely already reflected in Tuesday’s closing prices.
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