ALBAWABA – Purchase Managers Indexes (PMIs) in the industrial sector worldwide, released Friday, showed signs of contraction in major economies, with the United States (US) PMI reaching its lowest level so far in 2023, signalling the possibility of a US recession.
Factories from Japan to the US are downsizing production lines and struggling to secure new orders, Bloomberg reported Sunday.
The decline in the comparable index for the Eurozone, in June, exceeded economists' expectations, the New York-based news agency reported. It has hit its lowest level in more than three years.
Merchandise inventories worldwide are rising, as both the US and Europe are expected to see more interest rate hikes in the coming months.
Stock prices went down and government bond yields went up across markets globally.
However, yields on short-term bonds fell less than long-term bond yields, in what Bloomberg explained as a classic sign of recession.
According to Bloomberg Economics, the chance of a US recession within a year has reached 100 percent.
Germany's yield curve saw short-term yields outperformed long-term bonds at the highest level at what is known as the inflexion point since 1992. Meanwhile, United Kingdom (UK) two-year yields outperformed 10-year yields by a degree not seen since 2000.
US two-year yields show outperformed 10-year bonds by more than a percentage point on 10-year bonds as of Friday morning.
The "Standard & Poor's 500" index fell 0.7 percent at 10:38 am New York time, Bloomberg reported.
US may avoid recession?
The apparent pessimism in manufacturing PMIs and numerous financial assets contrasts US Treasury Secretary Janet Yellen’s assessment last Thursday that recession risks in the US have receded.
"If there is a change, my expectations are that these risks have receded, given the strength of the labor market and declining inflation," Yellen said during an interview in Paris.
Her assessment of the situation is in line with the estimates of many economists, as a Bloomberg poll published Friday revealed that there is currently a consensus that the US will avoid a recession this year. Even though core inflation will be speeding up at a higher pace than expected.
Neil Brown, head of the equity unit at GIB Asset Management, told Bloomberg Television, that good growth is expected this year, globally, at 2.8 percent, and 3 percent for the next year.
It may be fragile, he said, calling for caution about recession risks.
The purchasing managers' index for the global industrial sector of US companies included in the "Standard & Poor's" index fell to 46.3 points in June, which is much less than the 50-point threshold that separates growth from decline.
