U.S. business activity weakens further; euro zone recession eases slightly

By Lucia Mutikani and Jonathan Cable

WASHINGTON/LONDON (Reuters) – U.S. business activity contracted for a fifth straight month in November as rising interest rates slowed demand, a survey showed on Wednesday, but as the world braces for a recession a year ahead, The downturn in euro zone business activity has subsided slightly.

S&P Global said its U.S. composite PMI output index, which tracks the manufacturing and services sectors, fell to 46.3 this month from a final reading of 48.2 in October. A reading below 50 indicates contraction in the private sector.

Economic activity is slipping under the weight of the Federal Reserve’s most aggressive cycle of rate hikes since the 1980s, aimed at curbing inflation by dampening demand in the economy. By the U.S. central bank’s preferred measure, inflation remains more than three times its 2% target.

The composite new orders index fell to 46.4 from October’s final reading of 49.2, the weakest level in two-and-a-half years. Outside of the initial wave of the COVID-19 pandemic, it was the worst reading since 2009.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Companies reported headwinds from rising costs of living, tighter financial conditions — particularly higher borrowing costs — and weaker demand in domestic and export markets. There are more and more factors.”

A Reuters poll of economists last week showed a 60 percent chance of a U.S. recession within a year, and the Fed is poised to increase its rate of increase at its next policy meeting in three weeks as the battle to curb high inflation continues. interest rate of 50 basis points.

Meanwhile, the downturn in business activity in the euro zone eased slightly in November, offering a glimmer of hope that the expected recession may be shallower than feared, but consumers are still cutting spending amid a cost-of-living crisis.

Evidence is mounting that the bloc is entering a recession, with economists giving a 78 percent chance of a recession within a year, according to a Reuters poll published on Tuesday.

The flash S&P global composite purchasing managers’ index (PMI), seen as a good gauge of overall economic health, edged up to 47.8 from 47.3 in October, defying expectations for a drop to 47.0 in a Reuters poll.

However, November was the fifth consecutive month that the index was below the 50 mark that divides growth from contraction.

“Today’s PMI data continue to show that the euro area has entered a recession, with surveys pointing to a more modest contraction than in previous recessions,” said Paolo Grignani at Oxford Economics.

The downturn in German economic activity also eased in November, a sister survey showed, offering some hope that the expected recession in Europe’s largest economy may be milder than first feared.

But French economic activity contracted for the first time since February 2021 as a drop in new orders weighed on the euro zone’s second-largest economy.

In Britain, outside the European Union, economic activity fell at the fastest pace in almost two years in November, adding to signs of recession there.

price pressure down

Elsewhere in the report, wages remain sticky for now, despite evidence that the moderation in price pressures will be gradual, but there is some hope in the fight against inflation.

In the United States, the survey measuring prices paid by businesses for inputs slipped to 65.7 from a final reading of 67.0 in October, the lowest level since December 2020. This reflects an easing of supply bottlenecks.

Companies also raised product prices at the slowest pace in more than two years, partly because of falling demand.

The survey showed that the flash manufacturing PMI fell to 47.6 this month, the lowest reading since May 2020, and new orders remained subdued, but pressure on prices came as manufacturers said supplier performance improved for the first time since October 2019. Continue to lighten. Average input prices also rose at the weakest rate of growth in two years, but factories still faced challenges finding skilled labour.

The survey’s flash services PMI fell to 46.1 from 47.8 in October. The services sector also reported weaker demand and slower input prices.

In the euro area, there is a similar trend. New orders fell sharply again and price pressures eased markedly, with the output price index falling from 66.1 to 63.7, the lowest level since March 2021.

Still, inflation in the region remains unacceptably high. It reached 10.6% last month, more than five times the ECB’s 2% target, and the central bank is expected to raise the deposit rate by another 50 basis points next month, so any signs of easing price pressures will be welcomed by policymakers.

Activity in the euro zone’s dominant services sector fell again, with the headline index unchanged from October’s 20-month low of 48.6. Despite the continued economic slowdown, companies did increase headcounts, albeit at the slowest rate since March 2021.

Manufacturing activity, hit especially hard by soaring energy prices and supply chain disruptions, also fell, but at a slower pace. The main index rose to 47.3 from 46.4, above the 46.0 forecast in a Reuters poll.

“Indexes of input and output prices fell, consistent with other evidence that headline inflation is nearing a peak,” said Jack Allen-Reynolds at Capital Economics.

“But they’re still very high, especially as service firms report that rising wages are putting upward pressure on costs.”

(Reporting by Lucia Mutikani, Jonathan Cable and David Milliken; Writing by Lindsay Dunsmuir; Editing by Chizu Nomiyama)

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