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Around the world, factories are seeing slower demand for their products, or cutting production outright, as prices climb, interest rates rise, and central banks are shutting off the spigots of cheap money that defined the COVID era.
As prices began rising early in 2021, central banks assumed incorrectly that consumers’ surging post-COVID demand would be met with an equal surge in production.
Shortages of key materials and tangled supply chains refuted that assumption and this year central banks have scrambled to get hold of inflation with a series of sometimes dramatic interest-rate hikes.
Those higher rates have failed to restrain inflation but have dented consumers’ enthusiasm for spending.
In the U.S., consumers spent 0.4 percent less in June than a year before, when numbers are corrected for inflation, the worst performance in two years, as we report in “Consumer Spending Slowed Again in June” in this issue.
New orders for factories’ merchandise also fell in June for the first time since mid-2020. Manufacturing jobs in the U.S. were fewer for the second straight month.
S&P Global’s purchasing managers index found U.S. factory output was flat in June from May as sales fell for the first time since May 2020.
Expectations for future factory production sank to their gloomiest since October 2020, the poll found.
Across the 19-country Eurozone, manufacturing’s production was the least since October 2020, The Wall Street Journal reported.
New orders declined more sharply than at any time since May 2020, indicating that factory output will shrink further in the weeks ahead.
TREND FORECAST: The new report adds more evidence that Dragflation, our Top 2022 Trend that combines rising prices and slipping economic activity, is under way. And, as many commodity prices are now falling, should the Ukraine War continue and military tensions break out in the Middle East between Israel and the United States against Iran, oil and gas prices will rapidly escalate.