Tuesday, April 4, 2023

Economy concerns: US manufacturing is at a 3 year low. What does it mean to you?


The economical conditions across the world are in doldrums. The newest report has found out that US manufacturing activity has reduced in March and fell to the lowest levels in the last three years. This would be a surprise since March is the last month of the first quarter where budgets are unlocked in many organizations for the new year.

It is feared that the activity in manufacturing could fall further. This is could be due to many reasons such as the higher interest rates and credits are tough to come by.

Since 2009, all the subcomponents of the manufacturing PMI, conducted by ISM fell below 50. That said, the services sector PMI is still seen as expanding.

Economists are fearful that manufacturing PMI falling below the threshold of 50 may indicate an upcoming recession. But the experts are divided on it.

It is to be noted that the layoffs in the big companies in the US are indicative of an upcoming macro-economic situation where there will be lesser demand and longer sales cycles.

Chris Low, chief economist at FHN Financials also expressed similar views in February. He had said that as long as the PMI stays above 50, it should be fine.

On another report, US government had reported that manufacturing sector has grown on an annualised rate of 4.5% for the last few years.

US Stocks have been showing mixed results. US lost against a bunch of currencies. And many companies have reported in declining sales growth. The bank failures (SVB and Credit Suisse) have not added to the investors confidence. 

The impact of these reports across the world has to be verified. This could very well be an US based slow-down, another report said.

What does it mean?

Right now, many economists agree that there are no convincing signals for a global recession similar to what happened in 2008. But all the signals are not positive either. There have been mixed signals and this may make sense to wait out and see if the numbers go down in the coming months. 

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