Man-oh-manufacturing

Manufacturing continues to suffer

Image source: T. Lesia, Julinzy, VectorShop, Mike Focus, Fototocam - Shutterstock

What's going on?

The latest manufacturing activity figures are out for China, the UK, and the eurozone (a vacationing USA is due to release its own on Tuesday). And they made for even grimmer reading than expected…

What does this mean?

Ah, those halcyon days of July, when UK manufacturing activity was stuck at its lowest level since 2013. In August, it declined at a rate not seen since 2012, shrinking for the fourth month in a row. And a rebound isn’t looking likely any time soon either, what with the steep drop in new orders from firms worried about declining global and domestic economic growth – not to mention Brexit. Yes, that again.

Across the Channel, meanwhile, European factories registered their seventh month of manufacturing contraction – only a slight improvement on last month’s nine-year lows. New orders have now been falling for almost a year, and the dwindling backlog of industrial work means jobs continue to be cut across the sector.

Why should I care?

For markets: A self-fulfilling prophecy.
The British economy shrank last quarter, and anxious firms holding off on new factory orders for fear that the malaise may be continuing this quarter i.e. that the UK is entering a recession – may, ironically, be making it more likely. Investors’ eyes will now turn to Wednesday’s latest activity survey for the crucial services sector, which makes up 80% of the UK economy…

The bigger picture: It begins and ends with China.
Official data out on Saturday showed Chinese manufacturing also continued to shrink in August. Total export orders there have now fallen for 15 straight months, even with activity at big government-backed factories ramping up ahead of the arrival of the latest round of US tariffs. And the effects of the trade war continue to be felt around the world: as well as UK and eurozone industry suffering, manufacturing exports also dropped in both South Korea and Japan last month.

Originally posted as part of the Finimize daily email.

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