US & Eurozone Manufacturing Shrank

US & Eurozone Manufacturing Shrank

almost 4 years ago2 mins

New survey data out on Monday suggested manufacturing activity in both the US and eurozone continued to shrink in May – and there’s a lot of socially distanced work to do if they want to fix the situation 🛠

What does this mean?

These regular surveys ask purchasing managers in the manufacturing industry how busy they’ve been each month – and after a record amount of thumb-twiddling in April, those managers slowly started getting back to work last month.

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But while activity did pick up, the surveys suggested the US and eurozone aren’t out of the woods yet: both their manufacturing sectors are still shrinking as collapsing demand and coronavirus-disrupted supply chains continue to take their toll 🌲 Germany – whose manufacturing sector makes up a bigger proportion of its economy than its neighbors – fared the worst, but there was some better news for Italy: the former epicenter of the pandemic recorded the smallest contraction of all its European peers.

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Why should I care?

Monday’s manufacturing survey data is some of the last the European Central Bank will receive before it meets to discuss next steps on Thursday. With manufacturing activity still declining and Europe’s economy forecast to shrink around 10% this year, analysts are expecting the bank to increase its bond-buying measures by another $550 billion 💰 That comes after previous pledges to buy more than a trillion dollars’ worth of European bonds, and this additional top-up – which would increase bond prices and lower their yields – might come as good news for investors.

A similar survey of manufacturing activity in China out on Monday showed the opposite trend to the US and Europe: activity dipped but the sector is still expanding, albeit very slowly 🇨🇳 Perhaps the bigger risk facing China’s economy is its rising tensions with the US over coronavirus and Hong Kong. Reports on Monday, for example, suggested China is halting some US agricultural imports, threatening the tentative trade war truce the two reached six months ago.

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