The latest manufacturing figures in the US have taken a significant downturn, dropping at an annualized rate of 5.3% last month. This decline matches the lows seen last year and is the worst performance since the 2008 financial crisis and the subsequent COVID-19 lockdowns. Notably, this marks the eighth consecutive month of contraction in manufacturing, which is also the longest stretch since 2008. The most recent data indicates a decline in both production and employment, while new orders, often considered an early indicator, have also collapsed. Surprisingly, even consumer goods are now experiencing contraction.
Manufacturers have reported that consumers are scaling back their spending due to several factors. Firstly, the rising cost of living has contributed to a decrease in consumer confidence. Secondly, higher interest rates have resulted in increased debt payments for individuals, further impacting their spending capacity. Lastly, growing concerns about the overall state of the economy have made consumers fearful of potential job losses. Additionally, the pricing power of companies has diminished, leading to inventory liquidation and selling at discounted prices in anticipation of a decline in sales.
This decline in manufacturing is not limited to the United States alone; it has become a global phenomenon. The contraction in the US and Europe has spread to Asian exporters, with Europe’s most recent Purchasing Managers’ Index (PMI) even worse than that of the US. Europe’s year-on-year industrial production has also experienced a 4% decline, matching the levels observed in 2008 and during the lockdowns. Currently, China remains the only major country in positive territory, albeit only marginally.
The global manufacturing crunch has had a significant impact on commodity prices, which are now plummeting despite ongoing inflationary pressures worldwide. While inflation typically boosts commodity prices due to their status as hard assets, the recessionary environment is overpowering that effect. Overall, commodities are down 12% year-on-year, with industrial commodities, which are more sensitive to recession, experiencing a 14% decline. Notably, oil prices, which are highly responsive to economic downturns, have plummeted by 39%.
Looking ahead, it is expected that the drop in goods prices will continue as companies liquidate their inventory, while workers will likely forgo raises due to concerns about job security. The next sector likely to be affected will be services, as the rising cost of living, debt burdens, and employment uncertainties collectively dampen demand for various services ranging from haircuts to construction. If this trend continues, a decline in core inflation, as promised for some time, may finally be witnessed. However, this will not be indicative of a successful resolution to the inflation issue; rather, it will be a consequence of the deteriorating economy. It is worth noting that despite the challenging situation, policymakers may celebrate their perceived victories, possibly due to their lack of awareness or indifference to the toll inflation is taking on the American people.
After trillions of dollars being printed to finance government deficits, there are essentially two ways to address inflation: shrink the money supply or cause a significant economic downturn. While the money supply is currently contracting at the worst rate since the 1930s (as highlighted in a video from last month), this reduction only accounts for a tenth of the 40% increase in the money supply during the lockdowns. This implies that the remaining 90% of money printing is yet to impact the American consumer. It is concerning that we may be witnessing one of the largest deliberately engineered recessions in recent history, all to conceal the excessive money printing that was used to bribe voters during the covid. Despite the denial from our so-called leaders, businesses and increasingly, consumers are bracing themselves for a major economic storm. We will closely monitor the situation and provide updates in the future.
Until next time, stay informed and stay vigilant.
