Manufacturing Is Weakening in the World’s Largest Economies

Factories in the United States and the eurozone experienced a decline in new orders for manufactured goods in May as they worked through a backlog of orders, creating uncertainty about the manufacturing industry globally.

In the US, the manufacturing sector contracted for the seventh consecutive month in May, at a faster pace than the previous month. The Commerce Department reported that factory orders, excluding transportation, fell for the third consecutive month in April. Excluding defense, factory orders were down in four of the past six months through April.

Similarly, in the eurozone, production declined in May as the sector contracted at an accelerated pace. The EU's industrial production also experienced a significant decline in March.

China, the world's largest manufacturing industry, saw short-term relief in May as business conditions improved. However, recent data showed a decline in exports by 7.5% in May compared to the previous year, the largest drop since January. Imports also contracted further during that month.

The weakening conditions around the world can be attributed to the shift in consumer spending patterns. In 2020, consumers everywhere reduced their spending on services due to the pandemic, leading to a surge in goods purchases. 

Consequently, manufacturers faced a rapid increase in backlogs of orders. As countries lifted pandemic-era restrictions, consumers have gradually shifted their spending back to services, impacting the demand for goods.