UK and US manufacturing slows; eurozone inflation hits 8.6%; petrol at new record – as it happened | Business

UK and US manufacturing slows; eurozone inflation hits 8.6%; petrol at new record – as it happened | Business

UK manufacturing loses more steam as output growth grinds to near-halt

Output growth at UK manufacturers ground to a near standstill in June, the latest sign that the economy is slowing as consumers cut back.

The closely-watched S&P Global / CIPS UK Manufacturing PMI report has also found that business optimism hit a two-year low last month.

Activity rose at the slowest pace in two years, as new orders fell for the first time since January 2021.

And the consumer goods sector was especially hard hit, as household demand suffered a steep retrenchment on the back of the cost-of-living crisis.

🇬🇧 Growth in the UK’s manufacturing sector slowed in June with the #PMI at a 2-year low of 52.8 (May: 54.6). Weaker economic outlook, the war in Ukraine and raw material shortages led to a reduction in demand. Read more:

— S&P Global PMI™ (@SPGlobalPMI) July 1, 2022

The healthcheck on UK factories found that:

  • Output growth slows to near-stagnation pace…
  • …as new order intakes fall for the first time since January 2021
  • Price inflation remains elevated despite further easing

Companies blamed the fall in new business on a range of problems — including the weaker economic outlook, reduced new export order intakes, slower growth of domestic demand, the war in Ukraine, raw material shortages and the slowdown in China.

New export orders contracted for the fifth month running in June — with some firms saying ongoing Brexit-related difficulties and weaker growth had hit orders from the EU.

UK and US manufacturing slows; eurozone inflation hits 8.6%; petrol at new record – as it happened | Business
UK manufacturing PMI Photograph: S&P Global

This pulled the manufacturing PMI down to 52.8 from 54.6 in May. That’s worse than the preliminary “flash” reading of 53.4 taken during June, and nearer the 50-point mark showing stagnation.

Rob Dobson, director at S&P Global Market Intelligence, said:

Domestic market conditions became increasingly difficult and foreign demand fell sharply again, stifled by Brexit, transport disruption, the war in Ukraine and a global economic slowdown.

Business confidence took a hit as a result, dipping to its gloomiest since mid-2020. Jobs growth also slowed sharply amid the increasingly uncertain outlook and recent surge in energy costs.

Dobson warns that economic conditions may worsen:

“There were some welcome signs that supply-chain constraints and cost inflationary pressures may have passed their peaks. However, with these constraints still elevated overall and demand headwinds rising, it is likely that UK manufacturing will see the economic backdrop darken further in the second half of the year.”

Closing post

Time to wrap up, after a week in which recession fears gripped the markets tighter, UK industrial relations worsened as workers pushed for cost-of-living pay rises, and petrol got ever more expensive.

Here’s today’s main stories.

Have a lovely weekend… GW

Wall Street has begun the second half of the year as it ended the first — with share prices dropping.

The benchmark S&P 500 index has shed 18 points, or 0.4%, in early trading to 3,769 points, adding to the 20% plunge since the start of January.

The Dow is down 0.6% while the tech-focused Nasdaq Composite is 0.3% lower.

There are examples of US stocks recovering from first-half tumbles in the second six months of the year, so the markets could turn things around by December…..

S&P 500 performance:

year:    1st half:   2nd half:  full year:

1962:   -23.5%    +15.3%      -11.8%

1970:    -21%       +26.7%      +0.1%

2022:  -20.6%

Source: S&P Dow Jones Indices

— Jon Erlichman (@JonErlichman) July 1, 2022

…but that would need inflation to ease off, so central bankers could stop tightening policy quite so aggressively.

US factory growth slows to two-year low

Just in: American manufacturers grew at the slowest pace in two years last month.

The Institute for Supply Management’s June Manufacturing PMI fell to 53% last month, down 3.1 percentage points from the reading of 56.1% in May, a level that shows slower growth.

US factory bosses reported that new orders and employment levels contracted last month, while production levels and backlogs continued to rise.

Firms also continued to raise prices, but at a slower rate, whle exports and imports grew, and there were record-long lead times for capital expenditures and production materials

Timothy Fiore, chair of the ISM’s Manufacturing Business Survey Committee, said US manufacturing continues to be powered — though less so in June — by demand while held back by supply chain constraints.

Sentiment remained optimistic regarding demand, with three positive growth comments for every cautious comment. Panelists continue to note supply chain and pricing issues as their biggest concerns.

The Dutch central bank chief has apologized for the institution’s involvement in the 19th-century slave trade.

It’s the latest expression of contrition in the Netherlands linked to the country’s historic role in the trade in enslaved people, Associated Press reports.

The apology came at an event on the national day marking the Dutch abolishment of slavery and followed similar moves in recent years from municipal authorities in the major Dutch cities of Amsterdam, Rotterdam and Utrecht.

De Nederlandsche Bank has acknowledged that it was involved in the transatlantic slave trade between 1814 and 1863 and even paid compensation to plantation owners when the Netherlands abolished slavery, including to members of the central bank’s board at the time.

The bank’s president, Klaas Knot, told a gathering in Amsterdam:

“Today, on behalf of De Nederlandsche Bank, I apologize for these reprehensible facts.”

I apologize to all those who, because of the personal choices of many, including my predecessors, were reduced to the color of their skin.”

Two years ago the Bank of England apologised for the involvement of some of its past governors and directors in the slave trade, and pledged to remove all statues and paintings of them from public display at its London headquarters.

Supply chain disruptions delay delivery of 95,000 GM vehicles

General Motors has revealed that around 95,000 partly-built vehicles are sitting in its inventory waiting for parts, due to supply chain disruption and shortages of semiconductors.

GM will hold these 95,000 vehicles “manufactured without certain components” until they are completed, and expects to sell them to dealers throughout the second half of 2022.

Steve Carlisle, GM executive vice president and president for North America says:

We appreciate the patience and loyalty of our dealers and customers as we strive to meet significant pent-up demand for our products, and we will work with our suppliers and manufacturing and logistics teams to deliver all the units held at our plants as quickly as possible.

GM says this shouldn’t affect its full-year earnings guidance, but net income for the last quarter will be below consensus:

For the three months ended June 30, 2022, we expect net income to be in the range of between $1.6bn and $1.9bn and EBIT-adjusted to be in the range of between $2.3bn and $2.6bn.

$2.4bn was the consensus


— George Pearkes (@pearkes) July 1, 2022

GM also reported that US sales in the second quarter fell 15% year-on-year, but it still grew market share.

Supermarket fuel retailers have stopped cutting pump prices to encourage customers into their stores, motorists have been warned, after petrol hit a new high yesterday (see earlier post).

RAC fuel spokesman Simon Williams said the rise in the price of petrol to 191.4p illustrates “the biggest retailers’ resistance to reduce their pump prices in line with the lower wholesale cost of unleaded”.

“Rather than passing on some of the savings they are benefiting from, they are clearly banking on the wholesale market moving up again which is disappointing for drivers who are desperate to see an end to ever-rising prices.

“Sadly, there no longer seems to be any appetite among the big four supermarkets to drive customers into their stores with lower pump prices.

“We question whether we will ever see much competition between supermarkets over fuel again, let alone a so-called ‘price war’.”

The planned sale of the Kohl’s department store chain is off, as volatile markets sink another deal.

Kohl’s entered exclusive talks early this month with Franchise Group, the owner of Vitamin Shop and other retail outlets, on a deal worth about $8bn.

But with stock prices still under pressure, inflation rising, and consumer confidence weak, negotiations are off.

“Given the environment and market volatility, the Board determined that it simply was not prudent to continue pursuing a deal,” said Kohl’s Chairman Pete Boneparth.

Despite a concerted effort on both sides, the current financing and retail environment created significant obstacles to reaching an acceptable and fully executable agreement.”

Americans have grown more cautious with their spending with repeated economic signals that suggest the economy is slowing.

Shares of Kohl’s, based in Wisconsin, have fallen over 18% in premarket trading.

Earlier this week Walgreens Boots Alliance abandoned a sale of Britain’s biggest chemist, Boots, blaming global financial market conditions which meant potential buyers were struggling to fund an acceptable offer.

UK consumers borrow more, save less, amid squeeze

Financially squeezed households deposited less money into accounts in May than in April, the latest Bank of England data shows.

Around £5.7bn was saved in banks, building societies and NS&I accounts in May, down from a net flow of £6.3bn in April.

With inflation at 40-year highs, and food and energy bills soaring, households have been left with less spare cash to save (unlike during lockdowns, when forced saving jumped)

UK household savings deposits
UK household savings deposits Photograph: Bank of England

Consumers also borrowed an additional £800m in consumer credit last month, including £400m more on credit cards.

That’s below the pre-pandemic level, and also less than economists expected. Consumer credit often rises during good economic times, as people are confident they can borrow more.

But it can also be a sign that households are struggling, needing to put essential purchases on credit.

Consumer credit
Consumer credit Photograph: Bank of England

Poland’s manufacturing sector suffered a sharp fall in output last month.

High inflation and ongoing geopolitical turbulence led to a noticeable drop off in new orders, leading to a sharp contraction in production.

Jobs were cut, whilst business confidence sank to its lowest level since the height of the first Covid-19 pandemic wave in 2020, the latest survey of purchasing managers shows.

Poland’s manufacturing PMI dropped to 44.4 in June, a level only previously seen during the global financial crisis and the pandemic… (1/4)

— S&P Global PMI™ (@SPGlobalPMI) July 1, 2022

…manufacturers are reporting that the war in Ukraine and high inflation is eroding purchasing power, but the loss of momentum in June was startling…(2/4)

— S&P Global PMI™ (@SPGlobalPMI) July 1, 2022

…although, despite remaining elevated, there are signs that supply-chain inflation is dissipating…(3/4)

— S&P Global PMI™ (@SPGlobalPMI) July 1, 2022

July hasn’t brought much cheer to the markets, with factory growth slowing, and inflation soaring.

After a choppy morning, the FTSE 100 index is down 0.3% or 20 points at 7,148 points.

The pan-European Stoxx 600 has lost 0.5%, after Asia-Pacific markets were pulled down by disappointing factory growth data.

A market indicator measuring how investors are positioned held at “extremely bearish” levels for a third consecutive week, as investors pulled more cash out of equities and bonds, BoFA Securities said in a weekly note

Outflows from European equity funds extended into its twentieth week, while emerging market debt has now seen outflows for the past 12 weeks, BoFA said citing EPFR data.

In a sign that inflationary expectations have not yet peaked, inflows into inflation-adjusted bond funds saw their biggest inflows in 12 weeks.