- The latest purchasing managers’ surveys from IHS Markit and the Institute for Supply Management detail slowing growth for manufacturing and services across both regions.
- The warning signs come amid new risks of a trade war between the US and EU, with the World Trade Organization announcing Wednesday President Trump can levy $7.5 billion in tariffs on EU goods.
- Slowed job growth has historically precluded recession, as decreased spending and slowed production typically follow.
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Key economic metrics are flashing red for the US and the European Union as tensions between the two reach new highs.
The latest readings from prominent purchasing managers’ indexes show manufacturing sectors the US and EU struggling amid global trade conflict and slowing economies. Service and non-manufacturing industries also slowed through September in both areas.
The negative signs arrive after the WTO granted the US permission to levy $7.5 billion in tariffs on EU imports, specifically targeting Boeing-competitor Airbus. Further escalation of trade conflict between the bloc and the US could plunge the two economies into deeper economic woes.
Here are the critical measurements to follow and what they signal for the economic superpowers.
The services sector is counting for more of US economy as corporations move manufacturing to cheaper countries, but Thursday’s ISM non-manufacturing report showed a sharp drop in September. The index fell to 52.6 last month from 55.3 in August, reaching its lowest reading in three years. Any reading above 50 signals expansion, while those below 50 hint at sector contraction.
Several of the purchasing managers surveyed blamed tariffs from the US-China trade war for impacting supply chain efficiencies. The increased expenses pressure managers to find other ways to keep margins strong, including passing the extra costs to consumers.
“We are actively pursuing alternate sources for our China-based production. At this point, we have not passed on tariff costs to our customers, but we are evaluating all options,” one respondent said.
IHS Markit’s eurozone-based services index reflected a similar decline in a Thursday release. The metric hit 51.6 in September, down from 53.5 in the prior month and showing the weakest increase in activity since the start of the year.
The continent has suffered significantly from economic contraction in Germany and Italy. Though the pullback began in Germany’s manufacturing sector, the September figures point to the downturn affecting multiple nations and spilling over into service industries as well.
“Yesterday’s WTO ruling against the EU on Airbus lets Trump play ‘trade war’ with a new part of the world,” Stenn Group president Kerstin Braun said.
- Adam Glanzman/Getty Images
Manufacturing sentiments are plummeting between the US and EU as well, with surveyed purchasing managers signaling new lows for economic optimism.
The Institute for Supply Management announced Tuesday its manufacturing index dropped to 47.8 last month, the metric’s lowest level since June 2009. President Trump’s trade war with China has added pressure to US firms, as tariffs on thousands of products have raised expenses and affected several companies’ bottom lines in recent quarters.
Factories aren’t faring much better in Europe. IHS Markit’s Eurozone manufacturing index fell to 45.7 in September, down from 47 the month prior and remaining below the key median. The tumble was primarily caused by the sharpest decline in new orders since 2012, and forecasts for the rest of the year aren’t promising.
Businesses’ sentiments will likely “remain downbeat about the year ahead,” IHS Markit chief business economist Chris Williamson said, attributing the bleak outlook to “trade war worries, signs of slowing global economic growth and geopolitical concerns.”
The bigger picture
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Recession warnings plagued the end of the summer as the yield curve inverted and the Federal Reserve slashed interest rates for the first time since the 2008 financial crisis. The double-edged contraction in some of the world’s largest economies reignites fears of near-term recession.
“The services and manufacturing slow-down will cause a recession snowball effect – hitting the jobs market, then lowering wages and stagnating price,” Braun said.
The combination of lower wages and increased prices is a classic recipe for economic collapse, igniting a cycle of job loss, dwindling profits, and decreased spending. The last economic downturn was sourced from a bursting housing market and investments tied to that industry.
Though it remains to be seen if, when, and how the next recession arrives, the latest surveys show global trade conflicts posing serious economic risk.