GLOBAL ECONOMY-U.S. business activity weakens further; euro zone downturn eases slightly

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US business activity contracts for fifth consecutive month

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Euro zone, slightly better than expected German PMI

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The bloc is expected to enter recession amid high inflation

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Britain is also headed for recession, according to polls

By Lucia Mutikani and Jonathan Cable

WASHINGTON/LONDON, Nov 23 (Reuters) – U.S. business activity shrank for a fifth straight month in November as higher interest rates dampened demand, but a decline in eurozone business activity eased somewhat as the world braces for the next year of recession, according to surveys. They showed it on Wednesday.

S&P Global said its US Composite PMI Output Index, which tracks the manufacturing and services sectors, fell to 46.3 this month from a recent reading of 48.2 in October. A reading below 50 indicates a contraction in the private sector.

Activity is falling under the weight of the Federal Reserve’s most aggressive cycle of interest rate hikes since the 1980s to reduce inflation by dampening economic demand. By the US central bank’s preferred measure, inflation is still there

walking more than three times its 2% target.

The composite new orders index fell to 46.4, the lowest level in two and a half years, from a recent reading of 49.2 in October. Outside of the initial flurry of the COVID-19 pandemic, this was the worst reading since 2009.

“Companies are facing increasing headwinds from the rising cost of living, tightening financial conditions, particularly higher borrowing costs, and weakening demand in both domestic and export markets,” said Chris Williamson, S&P Global Markets. Head of Business Economics at Intelligence.

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A Reuters poll of economists last week gave a 60% chance of a US recession within a year and the Fed is poised to hike 50 basis points at its next policy meeting in three weeks as the battle to quell high inflation continues.

Meanwhile, the fall in business activity in the euro zone eased somewhat in November, offering a glimmer of hope that the recession there may be deeper than expected, but consumers still cut spending amid a cost-of-living crisis.

There is growing evidence that the bloc is heading into recession and economists in a Reuters poll published on Tuesday gave a 78% chance within a year.

S&P Global’s flash Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, rose to 47.8 from 47.3 in October, confounding expectations for a drop to 47.0 in a Reuters poll.

However, November is the fifth month that the index has been below the 50 mark that separates growth from contraction.

“Today’s PMI data continue to show that the eurozone has entered recession, with surveys pointing to a milder contraction compared to previous recessions,” said Paolo Grignani of Oxford Economics.

Germany’s decline in economic activity also eased in November, a sister survey showed, offering some hope that the expected recession in Europe’s biggest economy may be milder than previously thought.

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But activity in France shrank for the first time since February 2021 as lower new demand weighed on the eurozone’s second largest economy.

Economic activity in Great Britain, outside the European Union, fell to its fastest pace in nearly two years in November, adding to signs of recession there.

LOWER PRICE PRESSURES

Elsewhere in the report, there were some glimmers of hope in the fight against inflation, although evidence suggests the easing of price pressures will be gradual as wages remain sticky for now.

In the United States, a survey measure of prices paid by businesses for inputs fell to 65.7, the lowest level since December 2020, from the last reading of 67.0 in October. This reflected the easing of supply buttons.

Businesses were also raising product prices at the slowest pace in just over two years, partly due to lower demand.

The survey’s flash manufacturing PMI fell to 47.6 this month, the lowest reading since May 2020 as new orders remained subdued, but price pressures continued to ease as manufacturers reported the first improvement in supplier performance since October 2019. Average entry prices also increased on the soft side. in two years, but factories still had challenges in finding skilled labor.

The survey’s flash services sector PMI fell to 46.1 from 47.8 in October. Service companies also reported weak demand and moderation in input prices.

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In the Eurozone, there was a similar trend. New orders fell sharply again and price pressures eased sharply with the output price index falling to 63.7 from 66.1, the lowest reading since March 2021.

However, regional inflation remains unacceptably high. It reached 10.6% last month, more than five times the ECB’s 2% target, and the central bank is expected to add another 50 basis points to its deposit rate next month, so any sign of easing price pressures will be welcomed by policymakers.

Activity in the bloc’s main services industry fell again, with the headline index hitting a 20-month low of 48.6 in October. Despite the ongoing slowdown, companies increased the number of employees, albeit at the weakest pace since March 2021.

Manufacturing activity, hit hard by rising energy prices and supply chain disruptions, also declined but at a slower pace. The main index rose to 47.3 from 46.4, above a Reuters poll estimate of 46.0.

“Input and output price indices declined, consistent with other evidence that inflation is near record highs,” said Jack Allen-Reynolds of Capital Economics.

“But both are still very high as service companies in particular have complained that wage increases were putting upward pressure on costs.” (Reporting by Lucia Mutikani, Jonathan Cable and David Milliken; Writing by Lindsay Dunsmuir; Editing by Chizu Nomiyama)

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