Global manufacturing sputters with ongoing shift toward services spending

Washington, June 12

Manufacturers around the world are contending with weakening demand as the economic outlook for the industry darkens, the media reported.

Factories in the US and across the eurozone reported a decline in new orders for manufactured goods in May as they worked through their backlog of orders, CNN reported citing recent business surveys released by data firm S&P Global.

Among manufacturers in the eurozone, production, new orders and backlogs all fell in May as the sector contracted at a faster pace that month, according to S&P Global figures.

The 20-nation currency area's industrial production fell sharply in March, mostly due to a plunge in Ireland. The indicator measures the output of manufacturers, miners, and utility companies, CNN reported.

Business conditions in China's manufacturing industry, the largest in the world, improved in May, according to the Caixin manufacturing Purchasing Managers' Index.

That was a temporary sigh of relief for investors fearing that growth is stalling in the world's second-largest economy, but recent data showed that exports from China 7.5 per cent in May from a year earlier, the biggest decline since January, as imports contracted further that month, CNN reported.

Globally, manufacturers' optimism fell to its lowest level since December, according to the JPMorgan Global Manufacturing PMI.

"Although activity in the manufacturing sector looks to have improved somewhat in May, that was mainly due to stronger growth in some large emerging markets," wrote Ariane Curtis, global economist at Capital Economics, in an analyst note.

"The outlook for the industry remains bleak, with new export orders in particular falling sharply."

Consumers have since shifted their spending back toward services since countries around the globe rescinded pandemic-era restrictions.

Both in the US and Europe, hospitality businesses are gearing up for a record-breaking summer of travel.

That ongoing shift toward services spending, coupled with tighter financial conditions because of central banks raising interest rates, spells trouble for goods producers, economists say, CNN reported.

"We've seen a lack of demand for goods now across the globe because of this acceleration in the pivot from goods to services, which is why you're starting to see service-sector (purchasing manager indexes) picking up," said Tom Garretson, senior portfolio strategist at RBC Wealth Management US.

"And there's been a lot of anticipation for China's reopening, but obviously across the board that's failed to materialise".