ECONOMY
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Updated May 24, 2012, 7:26 p.m. ET
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New Signs of Global Slowdown
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Weak Reports in U.S., Europe and China Suggest Economies Are Slipping in Sync
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By JON HILSENRATH and JOSHUA MITCHELL
New signs of a global slowdown are darkening the economic outlook.
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On Thursday, the U.S. reported that businesses were slowing their orders of computers, aircraft, machinery and other long-lasting goods. Measures of business sentiment in Europe slipped, and reports from purchasing managers at manufacturers around the globe turned down. Among them, China, the world's second-largest economy, registered its seventh straight drop in an important manufacturing index.
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With the latest reports, a new economic threat is emerging: That activity is slowing in sync around the globe and not just in a few markets with their own isolated problems. Europe, struggling with the risk of a Greek pullout from the euro area and broader fiscal problems, is the epicenter of global economic concerns right now. But reports of economic trouble are turning up in China, India, South Africa, Brazil and elsewhere.
.When the global economy is performing well, synchronized growth reinforces itself and spreads prosperity wide and far. But slowdowns can become interconnected and self-reinforcing, and the global economy has been plagued by them since the financial crisis of 2008..
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Economic weakening, in turn, means investors are taking it on the chin. The MSCI World Index for stocks, which tracks markets around the globe, is down more than 9% since mid-March. Crude oil prices, another proxy for global demand, are down 15% so far this month.
Taken together, this could lead to new pressure on policy makers to respond with growth-boosting measures. The Federal Reserve so far has been noncommittal about whether it would launch any new measures to stimulate the U.S. economy. European officials are under intense pressure to back away from austerity measures, and the Chinese are looking for new ways to boost growth.
Many firms are pointing to troubles away from their home bases. Gary Hendrickson, CEO of Valspar Corp., VAL +0.08%a Minneapolis-based global paint supplier, told investment analysts Wednesday that almost all of its businesses in China had weakened. Valspar reported a 36% jump in profit earlier this month, but disappointed analysts with projections for the rest of the year.
Informatica Corp., INFA -0.37%of Redwood City, Calif., which makes software that helps companies integrate data, is seeing weaker sales in Europe, particularly in the public sector, Chief Executive Sohaib Abbasi said at an industry conference this week.
In last year's first quarter, the company secured a pair of $1 million deals with European governments. In this year's first quarter, it secured none, Mr. Abbasi said. Sales to European governments accounted for 1% of revenue in the first quarter, below the typical 3% to 5%, he said.
"The austerity measures have had an impact," Mr. Abbasi said. But the company is still seeing double-digit growth in other regions, including Latin America and Asia Pacific, he said.
"The worry is whether Europe will be worse than we anticipated before," Hewlett-Packard HPQ -0.55%CEO Meg Whitman said Wednesday while announcing plans to lay off 27,000 workers. As of now, she said she didn't see Europe's woes having a major impact on the company's U.S. business this year. "But I don't think anyone really knows," she added.
David Resler, an economist with Nomura Securities, said, "The dangers of a slowdown in Europe taking a bigger toll on the global economy have absolutely risen." He added that "we don't think there will be a global recession, but it could keep the world economy from growing vigorously."
Other regions are showing their own cracks. Brazil's central bank estimates its economy contracted in each of the first three months of this year, as poor industrial-output figures offset gains in retail sales.
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Many Brazilian industries have struggled with rising costs of labor, rent and materials, which have turned it into one of the world's most expensive places to do business. What's more, Brazil may be exposed to a slowdown in China, Brazil's biggest trade partner and a primary consumer of its iron ore, soy and other commodities.
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Infosys Ltd., INFY -0.07%the Indian outsourcing giant, posted a 1.9% decline in U.S. dollar revenues in the three months ended in March, its first quarterly drop since 2009, and the company projects single-digit growth in the current fiscal year, which is slow by its standards.
S.D. Shibulal, Infosys's CEO, said last month many U.S. financial-services clients now make spending decisions monthly, rather than annually. That gives them more chances to hit the brakes. Weak U.S. technology investment is a nagging concern.
In the U.S., new orders for computers and electronics fell by 0.6% in April from a month earlier, after falling 0.8% in March, Commerce Department data released Thursday showed. In all, new orders were up 0.2% in April after a 3.7% drop in March. But nondefense capital-goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 1.9% in April after dropping 2.2% in March.
Still, the U.S., after being the center of global trouble four years ago, might be a relative bright spot now. Recent indicators suggest that a long-dormant housing market is starting to recover, and job growth is stronger than it was last year. A steady U.S. economy could bolster the rest of the world.
J.P. Morgan Chase economist Bruce Kasman pointed out that consumer spending globally is stable. If it remains so in coming months, manufacturers could ramp up production this summer as inventories thin out, he said.
"I think you set yourself up for decent opportunity for a lift," assuming that the European crisis doesn't severely depress global demand, Mr. Kasman said.
One important risk to that forecast is China. On Thursday, HSBC Holdings PLC said its closely watched purchasing-managers index fell to a preliminary reading of 48.7 in May from 49.3 in April, indicating that manufacturing activity declined for the seventh-straight month in China. A reading below 50 indicates contraction, above 50, expansion. The May report follows a series of weak readings for April on everything from foreign trade to bank lending. Beijing is turning to a patchwork of initiatives across areas it hopes will spur growth and complement its long-term drive toward an economy powered by more consumption, innovation and private-sector activity.
Some analysts see a more concerted government effort by Chinese authorities if growth doesn't pick up.
"If loan growth and investment fail to pick up soon, the state sector will come under heavy pressure to start spending," said Mark Williams, an economist at research firm Capital Economics, in a note. "Prospects that the economy will soon be put on a more sustainable, more consumer-led footing still look remote."
—John Lyons, Aaron Back, Patrick McGroarty, Ben Worthen and Tom Wright contributed to this article.
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