The world economy continues to slide closer to the edge of recession with manufacturing around the world taking a major hit last month from the credit crunch and the credit freeze.
The world’s major economies seem to be slowing much faster than thought and towards contraction, not just below-trend levels of activity.
The series of glum reports had an immediate impact on stock markets overnight: many were down 2% or more, oil prices fell by more than $US4 a barrel to under $US94, copper lost 6% to $US2.60 a pound in New York, 19 month low.
Platinum and palladium tumbled with platinum falling under $US1,000 an ounce for the first time since late 2006 as car sales slumped around the world. Gold shed $US42 an ounce, or more than 4% to $US843. Silver lost 12% to just over $US11 an ounce.
That left the Australian dollar down more than 1 US cent at close to 77 US cents.
Stockmarkets around the world faded overnight, not because of the continuing worries about the bank bailout plan, but because of the sudden and sharp decline in manufacturing around the world.
Wall Street was off 3%-4%.
In fact some economists reckon that there was an outright slowdown in September thanks to the impact of the latest eruption in the credit crunch and the lending freeze that developed as Fannie Mae/Freddie Mac were bailout out and then a succession of crisis starting with Lehman Brothers failure in the middle of the month.
It’s reminder that will fall on deaf ears and closed minds in Washington and other countries where people oppose the $US700 billion bailout and want to push Wall Street and banks and financiers generally.
The size and spread of the global slump makes it clear that economies are already adjusting to the possibility of a collapse in finance and a freeze in lending: the jobless queues will surge from now on, Europe’s is rising and America’s will rise sharply tonight.
Manufacturing surveys in Japan, Europe and in the US made for unhappy reading: China showed a small gain; in Australia our manufacturing sector drifted in negative territory in September with no real improvement apparent.
US car sales slumped sharply in the month and shares of leading manufacturers were weak.
In fact there was a clue in the car industry at what happened in the US, and perhaps elsewhere. Sales and visitor traffic to dealer showrooms stopped after the weekend when Lehman brothers failed, Merrill Lynch was taken over by Bank of America and AIG was nationalised.
Banks started withdrawing credit lines, shutting down lending and leaving their cash with central banks.
So it’s no wonder that America’s PMI reading was 43.5 in September, down from August’s of 49.9.
That was the lowest reading since the 40.8 measure in October 2001, the month following the terrorist attacks on New York and Washington.
Economists had been forecasting a reading of 49.5, so they were surprised at the size of the fall.
(50 points is break even in these surveys with readings above that indicating optimism and expansion and below indicating pessimism and contraction in activity).
The index has averaged a reading of 49.6% for the past year, so the September outcome is a significant lurch downwards in pessimism and activity among manufacturers, who have been keeping the US economy alive with strong gains in exports.
In Japan sentiment among large manufacturers in the Bank of Japan’s quarterly Tankan survey went negative for the first time since June 2003, continuing a trend of falling confidence that has seen the economy contract in the second quarter of 2008 and exports and industrial production fall sharply.
Exports to the US fell 22% in August as car companies slashed local production and exports. Unemployment in Japan hit a four year high of 4.2% in August and the economy seems to be worsening faster than forecast.
In the eurozone, the purchasing managers’ index for September was confirmed at a reading of 45, down sharply from the ‘boom like’ 53.2 outcome a year ago. Economists say that in this survey a figure above 50 indicates a majority of the survey’s respondents are reporting rising output while anything under 50 suggest contraction.
In Britain, a survey like the PMI slumped from 45.3 in August to 41 last month, the weakest on record. The housing and retail slumps in Britain are hurting manufacturing, which is now being further whacked by slowing activity levels in Europe and the US, its two major markets.
Not even a 12%-plus fall in the value of the pound has helped, unlike the US where the weaker greenback stimulated a surge in exports that is now starting to fade.
US economists reckon that the last time the country’s manufacturing sector felt this sick was back in early 2001 when then Fed chairman, Alan Greenspan cut interest rates outside a regular Fed meeting by 0.50% and kept cutting, helping to ay the groundwork for the credit boom and bust!
The last time the US experienced such a sudden drop in its index was in January 2001, and helped prompt the Federal Reserve under Alan Greenspan, its then chairman, to cut rates by half a percentage point outside a scheduled meeting.
China’s PMI index rose to a reading of 51.2 from 48.4 in both August and July. They were lowered by the slowdown engineered to accommodate the two Olympics in Beijing. But it was still sharply lower than the April level of 59.2.
Australia’s PMI in September was relatively stable in September, up by 0.2 points to 47.2 and but still under the 50 level separating expansion from contraction.
The Australian Industry Group said
