Growing evidence has emerged this week that the Federal Reserve’s interest rate hikes, which have already caused a sudden collapse in the once-hot housing market, have fueled an unprecedented downturn for manufacturers, paving the way for which could lead to a prolonged downturn in the industry. production.
Although the slowdown in the U.S. economy this year has been driven by a slowdown in the housing market, the pain “appears poised to spill over to the manufacturing sector,” Bank of America economists led by Michael Gapen wrote in a note from Friday, citing data this week showing manufacturing activity falling to some of the lowest levels since the Great Recession.
Earlier on Friday, S&P Global economist Chris Williamson said factories were cutting output at a pace that “looks set to pick up momentum in the coming months” as manufacturers – facing “a unprecedented accumulation of unsold inventory” – seek to reduce inventory to more. manageable levels.
Inflation, higher interest rates and growing fears of recession have led to “a fall in demand for goods at home and abroad”, says Williamson, adding that new export orders last month “have fallen particularly sharply,” a sign of “one of the worst deteriorations in global trade since 2009,” according to the JPMorgan Global Manufacturing Purchasing Managers’ Index.
Given weak exports, Bank of America lowered its forecast for fourth-quarter gross domestic product growth to 1.2% from 1.4% the previous week, with economists at the bank predicting that the United States will end by falling into recession next year.
One bright spot: Bank of America says its pessimism about the manufacturing outlook doesn’t include automakers, which continue to face a shortage of semiconductors that could encourage them to ramp up production even in a recession.
Nonetheless, the overall slowdown in manufacturing “is likely to have a noticeable effect on economic activity and – perhaps – employment,” Gapen notes, noting that autos and auto parts account for just 5% of production. industrial.
As experts assess whether the country could plunge into a recession, here’s how the economy is holding up:
One of the hardest hit pillars of the economy this year, the housing market has suffered from falling demand as the Fed’s interest rate hikes drive up the cost of buying property. a house. Pending home sales, which measure purchase contracts signed on previously owned and existing properties, fell 4.6% in October, the fifth straight month of declines, according to the National Association of Realtors on Wednesday. Meanwhile, existing home sales have fallen 32% since January.
The job market
Despite waves of layoffs hitting some of the world’s largest employers, the labor market continues to show signs of strength, at least according to the Labor Department. Total employment rose by 263,000 in November, significantly better than the 200,000 new jobs expected by economists, according to data released Friday. “Today’s labor market report doesn’t scream recession,” CIBC Private Wealth US chief investment officer David Donabedian said in emailed comments Friday, before warning that “the labor market will weaken” as the economy heads into a recession next year. EY predicts the unemployment rate will rise from 3.7% to 5.5% by the end of next year, indicating that the economy could lose up to 3 million jobs.
In a detailed summary of its early November meeting, the Fed revealed that “a substantial majority” of officials believe a slower pace of rate hikes will “likely soon be appropriate” as the economy shows signs of weakening. cooling, paving the way for a half-point increase this month. Doubling down on Wednesday, Powell said, “The time to moderate the pace of rate increases may come as early as the December meeting.” After the strong jobs data, any sign that inflation is even stronger than expected could cast doubt on the Fed’s slowdown.
Stocks have rallied since late September but still face steep double-digit percentage losses. The S&P 500 is down 15% this year, while the tech-heavy Nasdaq has plunged 28%. In a Thursday note, JPMorgan analysts led by Dubravko Lakos-Bujas predicted that the S&P will “retest this year’s lows” in the first half of 2023, implying another 14% decline. The bank cited a “proverbial snowball” of high borrowing costs, deteriorating consumer savings and rising unemployment will contribute to poor market performance.
The labor market is still stronger than economists think: the United States created 263,000 new jobs in November (Forbes)
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Stock market will get worse in 2023 before it gets better, says JPMorgan (Forbes)
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