Fears of US recession heightened by manufacturing decline

The depth of the global industrial recession was highlighted yesterday by figures showing a further decline in manufacturing in the UK, US and continental Europe.

This means six of the seven largest economies – Britain, America, Japan, Germany, France and Italy – reported industrial gloom this week.

Manufacturers in America suffered their twelfth consecutive month of decline in July, the National Association of Purchasing Management said.

This is the strongest period of unbroken contraction since the recession a decade ago and, NAPM said, raised the chances of a US recession. "We are going to border on that recession probably for the next couple of months," said Norbert Ore, chairman of NAPM's business survey committee.

Economists said the survey raised the chance of another cut in US interest rates. Patrick Franke at Commerzbank said: "Should the employment report out on Friday show a significant drop in payrolls, with weakness spreading outside of manufacturing and temp agencies, an inter-meeting cut may even be back on the agenda."

Data tomorrow are expected to show non-farm payrolls – a measure of employment – fell 50,000 in July.

One positive sign was the swifter clearing of stock backlogs "The big dip in inventories is a good sign if we are looking for a glimmer of hope," said Sherry Cooper, chief economist at BMO Nesbitt Burns.

The gloomy picture was mirrored in Europe where a similar survey found manufacturing activity near 1998's record low.

In the UK industrial output fell for the fifth month in a row but a CBI survey showed retail sales rose at the fastest rate for 14 months, highlighting the UK's twin-speed economy.

Economists said the data were unlikely to force the central banks on either side of the Channel to cut interest rates today.