U.S. manufacturing cycle may peak in third quarter: Kemp | So Good News

Article content

LONDON – US economic output rose 2.6% in the three months from July to September, according to advanced estimates released on Thursday by the Bureau of Economic Analysis (BEA).

Economic output grew by 0.6% in the second quarter and 1.6% in the first quarter (“National Income and Product Accounts”, BEA, October 27) after a resumption of growth.

Article content

But under the headings, The detailed information in the report is manufacturing, It confirms that the economy is losing momentum, with freight and goods flows slowing.

Article content

In the third quarter, The headline growth in gross domestic product was driven by faster exports (+1.6 percentage points); The improvement was driven by positive contributions from slower imports (+1.1 points) and government spending (+0.4 points).

Inventory changes continued to make a negative contribution (-0.7 points) to gross domestic product for the second quarter.

However, exports import Both government spending and inventories are highly volatile from one quarter to the next.

It better captures the underlying momentum for actual final sales for private domestic buyers, which includes personal consumption expenditures and fixed investments.

The final sales rate by private domestic buyers (FSPDP) was just 0.1% in the three-month period from July to September. 2009 and the slowest rate before 2002.

Article content

FSPDP decelerated for the four quarters running from 2.6% in the fourth quarter of 2021 to 2.1% in the first quarter of 2022 and 0.5% in the second quarter of 2022.

Chart Book: US Final Sales

Personal consumption spending on goods fell 1.2% between July and September after rising 2.3% at the end of 2021.

Services spending was stronger, growing at an annualized rate of 2.8%, but that was down from 3.5% in the final three months of last year.

Fixed investment spending contracted at an annualized rate of 4.9% in the July-September period, following a contraction of 5.0% in the April-June period.

The decline in consumer spending and fixed investment is consistent with new orders indicated by a slowdown in manufacturing activity and surveys conducted by the Institute for Supply Management.

Article content

The ISM manufacturing index fell to 50.9 in September (36th percentile for months since 1980) and 53.0 (52nd percentile) in June; It was down from 57.1 (82nd percentile) in March and 58.8 (90th percentile) in December 2021.

Reports of a sudden drop in spending on computers and other electronics also hit semiconductor makers hard.

Statistics show that the trading-manufacturing-freight side of the economy is likely to reach a temporary peak in the third quarter as inflation and spending crunch.

The larger services sector is still expanding at a brisk pace, but the slowdown is likely to spill over from goods over the next few quarters.

Article content

In 2020, after the first wave of the pandemic, an exceptionally strong cyclical rate, rapid inflation, This has been dampened by higher interest rates and heightened uncertainty.

The depth and duration of the impending cyclical downturn remains uncertain, and it is unclear whether it will be a mid-cycle “soft patch” or an end-of-cycle “recession”.

But slower growth will eventually take some of the strain off global supply chains and ease pressure on energy and commodity markets by 2023.

Related Columns:

– US diesel shortage likely to increase as economy slows (Reuters, October 27)

– Global manufactured goods shipments fall (Reuters, October 19)

– U.S. manufacturing growth stagnates amid high inventories (Reuters, Oct. 3)

– US manufacturing shows signs of peaking (Reuters, August 9)

John Kemp is a Reuters market analyst. Views expressed are his own (Editing by Kirsten Donovan)