Economy
23 June 2022
US recession fears darken outlook for global growth
Stagflation is being detected in the euro zone.
Photo by Markus Spiske on Unsplash
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LONDON/TOKYO, June 23 (Reuters) - Manufacturing growth is slowing from Asia to Europe as China's COVID-19 curbs and Russia's invasion of Ukraine disrupt supply chains, while the growing risk of a recession in the United States poses a new threat to the global economy.
High prices in the euro zone meant demand for manufactured goods fell in June at the fastest rate since May 2020 when the coronavirus pandemic was taking hold, with S&P Global's headline factory Purchasing Managers' Index (PMI) falling to a near two-year low of 52.0 from 54.6.
A Reuters poll had predicted a more modest drop to 53.9 and the index nudged closer to the 50 mark separating growth from contraction.
"June's euro zone PMI surveys showed a further slowdown in the services sector, while output in the manufacturing sector now seems to be falling outright," said Jack Allen-Reynolds at Capital Economics.
"With the price indices remaining extremely strong, the euro zone appears to have entered a period of stagflation."
There is a roughly one in three chance of a recession in the bloc within 12 months, economists in a Reuters poll published earlier on Thursday predicted. They also said inflation - which hit a record high of high of 8.1% last month - was yet to peak.
Jerome Powell, chair of the Federal Reserve, said on Wednesday the central bank was not trying to engineer a recession in the United States to stop inflation but was fully committed to bringing prices under control even if doing so risks an economic downturn.
He acknowledged a recession was "certainly a possibility."
Inflation continues to run at least three times higher than the Fed's targeted level of 2% and it is expected to deliver another 75 basis point interest rate hike next month, according to economists polled by Reuters.
Despite Powell's comments a few primary dealers have either started predicting a recession as early as this year or have brought forward their recession calls.
U.S. investment firm PIMCO warned on Wednesday that central banks tightening monetary policy to fight persistently high inflation raised the recessionary risk.
There is a 40% chance of a U.S. recession over the next two years, with a 25% chance of that happening in the coming year, a Reuters poll found earlier this month.
"The global macroeconomic outlook has deteriorated materially since end-2021," said Fitch Ratings, which slashed this year's global growth outlook to 2.9% in June from 3.5% in March.
"Stagflation, which is characterized by persistent high inflation, high unemployment and weak demand, has become the dominant risk theme since late 1Q22 and a plausible potential risk scenario," it said in a report released this week.
A string of recent data globally showed policymakers are walking a tight rope as they try to defuse inflation pressures without tipping their economies into a steep downturn.
U.S. retail sales unexpectedly fell in May and existing home sales tumbled to a two-year low, a sign high inflation and rising borrowing costs were starting to hurt demand.
Britain's economy unexpectedly shrank in April, adding to fears of a sharp slowdown as companies complain of rising production costs. Its PMI also showed signs the economy was stalling as high inflation hit new orders and businesses reported levels of concern that normally signal a recession.
There is a 35% chance of a British recession within 12 months, another Reuters poll showed.
In Asia, South Korea's exports for the first 10 days of June shrank almost 13% year-on-year, underscoring the heightening risk to the region's export-driven economies.
While Chinese exporters enjoyed solid sales in May, helped by easing domestic COVID-19 curbs, many analysts expect a more challenging outlook for the world's second-biggest economy due to the Ukraine war and rising raw material costs.
The au Jibun Bank flash Japan Manufacturing PMI slipped to 52.7 in June from 53.3 in May, marking the slowest expansion since February.
(Reporting by Jonathan Cable and Leika Kihara; Editing by Shri Navaratnam and Toby Chopra)
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02 June 2023
Macy's sees 'reset year' for ecommerce
The retailer's marketplace is expanding quickly.
When it comes to ecommerce growth, was the pandemic a blip or a new trendsetter?
As we move further from the height of COVID-related closures, it’s a question that will start to be answered through the lens of history.
So far, the narrative of ecommerce growth in the U.S. from 2019-2022 has gone like this: Ecommerce’s share of overall retail saw a huge spike at the height of the pandemic in 2020-21, when goods in general were in demand and online shopping was necessary to preserve health and safety. Experts looked out and saw a permanent exponential change in the penetration of ecommerce as a share of retail that would last beyond the pandemic. Then, in 2022, everyone went back to stores and the trendline came back to 2019 levels. Growth was no longer exponential. There was still growth, but it was not happening as fast as during the pandemic period.
With this in mind, it’s worth pointing out that 2023 is the first year that there likely won’t be a pandemic-influenced swing to influence ecommerce growth. It is also a year where demand has suffered challenges amid inflation and interest rate hikes.
So as we seek to determine the importance of ecommerce to overall retail, it’s worth it to continue taking a close look at what growth trends retailers are seeing now, whether ecommerce is remaining resilient amid consumer pullback and how retailers are preparing for the future.
The latest example arrived this week from Macy’s. It’s a fitting one for the times. Overall, Macy’s is seeing a slowdown as consumers pull back on discretionary purchases, with sales declining 7% in the first quarter versus the same quarter of 2022. Digital sales were down 8%.
Macy’s is particularly susceptible to the macroeconomic headwinds that many brands and retailers are facing, as spending among the middle-income consumers it counts as a primary customer base is particularly softening, said GlobalData Managing Director Neil Saunders.
But while ecommerce is slowing overall, the importance it gained to Macy’s business during the pandemic is remaining in place.
In 2019, ecommerce made up 25% of Macy’s revenue, CEO Jeff Gennette told analysts on the company’s earnings call. That jumped to a high of 44% in 2020. By 2022, digital reached 33% of sales after the pandemic boom. In the first quarter of 2023, it remained at 33%. So, while the trend line dipped after shoppers returned to stores, ecommerce share still settled in at a higher post-lockdown point than it was before the pandemic.
This came in a quarter in which traffic was “relatively good” across both online and in-store, Gennette said. It was “flattish” online, and slightly up in stores.
“We do expect that this is the reset year with the penetration between them,” Gennette said. “But we do expect more aggressive growth in digital in the future versus stores as we think about '24 and beyond. And that's going to be foisted by a lot of ideas and strategies.
Over the last year, the retailer has made investments in boosting ecommerce, even as shoppers returned to stores. In a bid to boost the assortment of goods available online, Macy’s launched a marketplace in September 2022 that welcomes goods from third-party sellers.
The marketplace had an “outstanding” first quarter, said Macy’s President Tony Spring, who is poised to succeed Gennette as CEO next year. Gross merchandise value increased over 50% when compared to the fourth quarter of 2022, while the average order value and units per order for marketplace customers was 50% above those not shopping at the marketplace.
Macy’s is continuing to build the marketplace even as it racks up sales. The retailer added 450 brands, ending the quarter with 950 brands.
This is helping to draw in new customers, as well as younger existing customers who are buying more items, resulting in increased basket size.
“We're very excited as to how marketplace is really attracting the Gen Z customer, particularly in categories where it was not economically feasible for us to carry in the past,” Gennette said.
In the end, Gennette said a strong digital and social presence is key to attracting younger consumers. That's a different type of shopper than other age groups.
“We know the younger customer starts first online,” Gennette said. That behavior will still be in place as the generation gets older, and gains more buying power in the process.
Going forward, Macy’s is seeking to expand the model to other retail banners in its portfolio. Bloomingdale’s will open a marketplace in the early fall.
The Macy’s ecommerce trajectory isn’t that different from the wider U.S. ecommerce narrative detailed above. With one quarter of 2023 data, there is evidence that ecommerce share settled out at a higher point after the pandemic than where it started before COVID arrived. There is flattening now, but the retailer is taking it not as a sign of a slowdown, or a signal to change course. Rather, it sees changing consumer behavior as a reason to build for the future.
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