**Global Economies Flash Warning of Sharp Slowdown**
**Surveys of purchasing managers point to weakness in manufacturing and services as higher prices hit household spending power**
**By Paul Hannon and Gabriel T. Rubin, The Wall Street Journal, Aug. 23, 2022**
**Business activity in the U.S., Europe and Japan fell in August, according to new surveys, pointing to a sharp slowdown in global economic growth as higher prices weaken consumer demand and the war in Ukraine scrambles supply chains.**
**U.S. companies reported a sharp drop in business activity in August in a broad-based decline led by services companies, though manufacturing slowed as well. High inflation, material shortages, delivery delays and interest-rate rises all weighed on business activity, the S&P Global survey said. ...**
**Businesses in both [manufacturing and services] sectors reported a decline in new orders in the eurozone, which points to weakness in the months to come, while factories reported a buildup in inventories as goods remained unsold....S&P Global’s surveys indicated that private-sector activity in Japan and Australia also declined in August for the first time since a wave of new Covid-19 infections at the start of the year....** [end quote]
The Eurozone is being hit by high fuel prices and restricted volumes due to Russia’s invasion of Ukraine.
The latest data for the U.S. is June 2022. At that point, new orders were rising and inventories, which had been rising sharply, stabilized. Rising inventories are bad for manufacturers since they might have to cut prices to sell, which reduces profits.
But a lot has changed since June since the increase in interest rates has caused home and vehicle sales to drop.
Sales of housing and vehicles are important Macro indicators since so many jobs are associated with these sectors.
Investors should be aware of the stock market history during the 1970s stagflation. The Fed raised rates to control inflation but eased when the economy slowed. This easing led to more inflation, rinse and repeat. The stock market had several rounds of recovery but these were followed by plunges. The June to August 2022 stock market recovery may be similar.
China’s economy is also slowing, due to Covid shutdowns and high debt loads.
A global economy is highly interdependent. Global stagflation will not be good for trade or for the stock market.