The prospect of a synchronized recession across the global economy loomed larger last week after news that China’s factory output shrank for an 11th straight month, Europe’s recession intensified and the manufacturing sector in the US had its weakest quarter in three years.
Four years after the collapse of Lehman Brothers triggered the biggest slump since the 1930s, a range of gloomy data highlighted the struggle policymakers have to boost activity.
Analysts said Europe’s sovereign debt crisis, high commodity prices, the legacy of the financial collapse and tension between the world’s three biggest economies had soured the economic environment since the start of the year.
Japan, involved in a territorial row with China over disputed islands, reported a drop in exports for a fourth month, leaving the country on course this year to run a trade deficit for a second year. Meanwhile, a flash estimate of US industry in the third quarter from Markit showed that output has barely been rising over the summer. The purchasing managers index stood at 51.5 this month, down from 54.2 in June and the weakest since September 2009.
“Manufacturing isn’t looking good,” said David Sloan, economist at 4Cast in New York. “The global situation is a restraint on the US economy. “Certainly, there is not going to be much growth in Europe. Growth in Asia, and China in particular, is slowing down, so US growth is going to have to be domestically generated.”
Markit chief economist Chris Williamson said: “With output growing at the slowest pace since the recovery began, the manufacturing sector may have even acted as a slight drag on the economy in the third quarter.”
A separate report from the US Department of Labor showed initial claims for unemployment aid edged down only 3,000 to a seasonally adjusted 382,000 last week.
Economists had attributed a spike in claims in the prior week to hurricane Isaac, but the minimal improvement in the latest reading pointed to fundamental weakness and will add to the nervousness of US President Barack Obama’s team in the remaining weeks of the US presidential election campaign.
With jobs and growth seen as vital in the race for the White House, the four-week moving average for new claims rose 2,000 to 377,750 — the highest level since June and the fifth consecutive weekly increase.
Pressure is also mounting on Beijing for a fresh economic stimulus after the broad-based weakening in global demand continued to dampen export demand from China’s factories and left the economy on course this year to post its first sub-8 percent growth since 1999. Despite an easing of credit conditions and higher spending on infrastructure spending, analysts warned there was little sign of an end to the slowdown in the world’s second-biggest economy.
“We are now approaching the one-year anniversary of this index dropping below 50 and a recovery is still not in sight,” said Mark Williams, chief Asia economist at Capital Economics.
The flash estimate of manufacturing from HSBC/Markit showed the purchasing managers’ index at 47.8, little changed from the 47.6 recorded last month and below the cut off point of 50 that separates a contracting from expanding sector.
Meanwhile, a European commission report showed eurozone consumer confidence falling for the fourth consecutive time this month to a 40-month low amid signs that activity across the 17-nation eurozone is heading for a second quarter of decline, meeting the technical definition of recession. Markit’s composite PMI for the eurozone dropped from 46.3 to 45.9 this month, its lowest level in three years.