According to the UK Herald, UK manufacturing looks to be plunging...

According to the UK Herald, UK manufacturing looks to be plunging back into recession. The Chartered Institute of Purchasing and Supply said overall UK manufacturing activity had decreased for the second successive month in May and at the fastest rate since March 2003. The manufacturing output component of the survey, meanwhile, showed its first fall for more than two years. New orders fell for the second successive month and at their sharpest pace since March 2003, as export business declined for the fifth straight month. CIPS said factory gate prices fell in May for the first time in 20 months. The rate of input price inflation, meanwhile, eased to its lowest level since September 2003.John Butler, UK economist at banking giant HSBC, said: 'It is pretty incredible. The UK industrial sector looks as if it is heading back towards recession when it didn't experience any recovery that other countries saw. In terms of the monetary policy implications, the real danger for the economy is now (that) the consumer is slowing (and) it is difficult to see what parts of the economy are going to pick up the growth pattern.'The industrial sector has just seen a year where we have had the strongest global growth for 30 years. It hasn't seen any recovery. It is hard to see why it should see any recovery over the next 12 months.' Pointing out financial markets were now pricing-in a cut in rates within six months, Butler added: 'The continuation of this type of news will only encourage the view that interest rates could be coming down in the near future.'The downturn in manufacturing in May was widespread. Consumer goods production declined for the first time in more than two years in May, capital goods output contracted at its fastest pace for nearly three-and-a-half years, and production of intermediate goods fell for the first time since April 2003. CIPS' headline purchasing managers index for manufacturing, a composite measure of activity in the sector which includes the likes of output, orders, and employment, fell from an upwardly-revised 49.5 in April to 47.3 last month to signal the second consecutive month of contraction. The City had predicted a figure of 49.8.National Statistics said on May 25 that UK manufacturing output had fallen by 0.7% in the first quarter. With CIPS' normally more optimistic figures now showing contraction in overall activity in April and May, and a fall in the output component last month, yesterday's survey signals a high probability that manufacturing will enter recession in the three months to June on the technical definition of two consecutive quarters of decline. Following is a chart of the LSS Short Sterling Future for September 2006. With interest rates currently at 4.75% one can see that the odds are better than even that a cut will be made by August of 2005 and at least one additional cut by June of 2006.Let's take a look at New Zealand. Hmm it seems there are some problems there as well. Risks For NZ Recession Seen As Rising according to the Australian Investment review. Using the US-developed Probit Model to quantify the risk of recession it has identified increasing signs a ‘hard landing’ is now more likely. The broker now calculates there is a 50% chance the economy will enter a recession in the current half, with risks skewed to the downside and financial conditions now contractionary rather than expansionary. The broker notes leading indicators of activity and confidence have dropped sharply in recent months, while the debt-servicing ratio is expected to continue to increase. Here is some additional NZ data to ponder: