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US manufacturing sinks into recession amid trade wars
WASHINGTON, July 17, 2019 (BSS/AFP) – US manufacturing sunk into recession
in June after two consecutive quarters of declines amid President Donald
Trump’s bitter trade wars and a slowdown in China and other trading partners.
The decline comes as the United States enters its 11th year of economic
recovery and occurs despite Trump’s constant pledges to restore America to
manufacturing greatness — even though services now drive three quarters of
the US economy.
Despite jumping in June, manufacturing fell by a 2.2 percent annual rate
in the April-June period, and total industrial production lost 1.2 percent,
in both cases the second consecutive quarterly decline, the Federal Reserve
said Tuesday.
“Manufacturing has borne the brunt of tariff uncertainties and slowing in
global economic activity,” RDQ Economics said in an analysis.
The retreat comes even as American consumers are sustaining their appetite
for spending, pushing retail sales higher for the fourth straight month, as
shoppers in June took home more new autos and furniture and dined out more
frequently.
Manufacturing jumped 0.4 percent compared to May, while total industrial
production showed no change, according to the Federal Reserve report,
confounding economists’ expectations for a 0.2 percent gain.
However, economists said that uptick was unlikely to be sustained in
coming months.
“Manufacturing is enduring a mild recession, but it probably won’t deepen
much further,” Ian Shepherdson of Pantheon Macroeconomics said in an
analysis.
– Lower interest rates –
The downturn in manufacturing is “not news; it’s a consequence of China’s
cyclical slowdown and the trade war,” he said.
He predicts Washington and Beijing will find a deal to end their bitter
trade dispute — following the resumption of talks by telephone this month —
meaning that by the end of the year “China’s economy will be turning up.”
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Meanwhile, retail sales rose 0.4 percent in June, double the expected
gain, meaning sales are up a solid 3.4 percent compared to June of last year,
according to government data.
The contrary data cast a bit of a cloud over growth figures for the second
quarter and could confuse the Federal Reserve’s interest rate strategy.
However, Fed Chair Jerome Powell doubled down on the case for a cut in the
key borrowing rate this month, given weak manufacturing and business
investment and concerns about lagging inflation.
Powell said inflation expectations “are near the bottom of their
historical ranges,” and despite the Fed’s confidence that the US economy will
continue to grow, many officials feel “the combination of these factors
strengthens the case for a somewhat more accommodative stance of policy.”
Shepherdson, however, said a rate cut would be premature given his
expectation for a recovery in the second half of the year.
“To cut rates now because of the recent weakness of manufacturing is a
mistake, in our view, because monetary policy works with long lags, and
easing in H2 will be supporting growth next year,” he said.
But Oxford Economics expects “manufacturing activity and overall
industrial production to remain under pressure from these headwinds,” and
predicts the Fed to produce “three ‘insurance’ rate cuts over the next nine
months.”
Along with higher manufacturing, mining output rose 0.2 percent, while
petroleum and coal jumped 2.5 percent. Mining surged 8.9 percent in the
latest quarter, its 11th consecutive quarterly increase.
But with milder temperatures in June easing demand for air conditioning,
utilities output fell 3.6 percent in June.
BSS/AFP/HR/1000