Factory data dampen global hopes for 'soft landing'

A bicycle rider rides past a factory at Keihin industrial zone in Kawasaki · Reuters

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'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 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."