Inflation, Rising Rates Curb Global Economic Growth

Growth in the U.S. and global economies slowed in May as high inflation and rising interest rates dented demand, business surveys said Tuesday.

Business activity at services businesses in the U.S., eurozone, U.K. and Australia all grew more slowly in May amid rising prices, according to S&P Global surveys. The firm’s purchasing managers index surveys also reported Tuesday that factories in major global economies face supply-chain disruptions related to Covid-19 surges and the Ukraine war, as well as higher fuel costs and rising wages.

Separate U.S. figures on Monday pointed to slower growth in a segment of the housing market. The Commerce Department said purchases of newly built single-family homes declined in April for the fourth straight month, dropping 16.6% in April from the prior month to a seasonally adjusted annual rate of 591,000. That marked the slowest pace of sales since April 2020 at the start of the pandemic.

New-home sales are a relatively narrow slice of all U.S. home sales, and sales figures can be volatile and subject to revisions. Still, the drop adds to signs the housing market is slowing amid record home prices and rising mortgage rates.

The global economy faces a series of obstacles this year, ranging from Covid-19 lockdowns in China, soaring energy and food prices, Russia’s invasion of Ukraine and a broadening drive by central banks to combat high inflation by increasing borrowing costs.

Some businesses are planning for a significant slowdown in growth or economic contraction.

Electronics retailer Best Buy Co. reported falling sales and profits for the latest quarter and said its results for the current fiscal year will be worse than it had previously predicted amid increased sales promotions and higher supply-chain expenses. Abercrombie & Fitch Co. swung to a quarterly loss, hurt by higher freight and product costs.

Retailers have posted mixed results for the first quarter. Last week, Walmart Inc. and Target Corp. posted weaker-than-expected earnings.

The surveys of purchasing managers at businesses in some of the world’s largest and richest economies indicate that activity continues to be supported by the easing of restrictions on the services sector as Western societies learn to live with Covid-19, with sectors such as tourism experiencing a strong recovery. Still, high inflation, geopolitical tensions and rising interest rates are clouding the outlook.

In the U.S., S&P Global said its composite purchasing managers index—which measures activity in both the manufacturing and services sectors—was 53.8 in May, down from 56.0 in April and the weakest rate of growth in four months. Separately, S&P Global said its index for the eurozone’s services and manufacturing sectors fell to 54.9 in May from 55.8 in April. A reading above 50.0 points to an expansion in activity, while a figure below that threshold points to a contraction.

While the surveys point to continued growth in the second quarter, they appear to have exaggerated the strength of the global economy during the first three months of the year.

According to the Organization for Economic Cooperation and Development, economic output in its 38 members was just 0.1% higher in the three months through March than it was in the final quarter of 2021, a sharp slowdown from the 1.2% growth recorded in the three months through December.

Economists at Capital Economics say that, based on their history, the PMIs pointed to growth in rich countries of around 0.5%.

“This partly reflected volatility in imports and inventories and the effects of Covid restrictions, all of which should fade from now on allowing the PMIs to give a more accurate steer,” wrote Ariane Curtis in a note to clients.

Facing the full brunt of the jump in energy prices triggered by Russia’s attack on Ukraine, European policy makers are preparing for tough economic times ahead.

“It’s now very clear that the economic toll of this war is world-wide,” said Irish Finance Minister Paschal Donohoe after heading a meeting of eurozone treasury chiefs Monday. “High prices and disruption to food supplies are rippling across the world with very serious consequences for the most vulnerable in our societies.”

According to the surveys of purchasing managers, the U.K. has suffered the sharpest blow to activity in the wake of the invasion. S&P Global said its PMI for the country slumped to 51.8 in May from 58.2 in April to hit its lowest level in 15 months. Inflation hit a four-decade high in April as home energy prices surged.

“In the U.K., we are facing a very big negative impact on real incomes caused by the rise in prices of things we import, notably energy,” said Andrew Bailey, governor of the Bank of England, in a speech Monday. “We expect that to weigh heavily on demand.”

Citing the impact of the conflict on energy and food prices, the United Nations last week lowered its forecast for global economic growth in 2022 to 3.1% from 4%, and its forecast for U.S. economic growth to 2.6% from 3.5%.

Business leaders share those worries. A survey conducted by the Conference Board and released Tuesday found chief executive officers at 56 of Europe’s leading companies had become much more gloomy about their prospects in the six months since the last poll. The measure of confidence fell to 37 from 63, with a reading below 50.0 indicating that more CEOs are pessimistic than optimistic about the outlook.

They call themselves TikTok refugees—and the app they are fleeing to is a lot more Chinese than the video-sharing app whose U.S. fate now hangs in the balance.

After Supreme Court justices Friday seemed inclined to let stand a law that would shut down TikTok in the U.S., the Chinese social-media platform Xiaohongshu , translated in English as Little Red Book, has received a flood of American TikTok users. They are looking for a sanctuary or a way to protest the potentially imminent TikTok ban—never mind that they don’t speak Chinese.

Charlotte Silverstein, a 32-year-old publicist in Los Angeles, downloaded Xiaohongshu on Sunday night after seeing videos on TikTok about migrating to the app, which Americans dubbed “RedNote.” She described the move as a “last act of defiance” in her frustration about the potential TikTok ban.

“Everyone has been super welcoming and sweet,” said Silverstein, who has made three posts so far. “I love the sense of community that I’m seeing already.”

By Monday, TikTok refugees had pushed Xiaohongshu to the top of the free-app chart on Apple ’s App Store.

“I’m really nervous to be on this app, but I also find it to be really exciting and thrilling that we’re all doing this,” one new Xiaohongshu user said in a video clip on Sunday. “I’m sad that TikTok might actually go, but if this is where we’re gonna be hanging out, welcome to my page!” Within a day, the video had more than 3,000 comments and 6,000 likes. And the user had amassed 24,000 followers.

Neither Xiaohongshu nor TikTok responded to requests for comment.

The flow of refugees, while serving as a symbolic dissent against TikTok’s possible shutdown, doesn’t mean Xiaohongshu can easily serve as a replacement for Americans. TikTok says it has 170 million users in the U.S., and it has drawn many creators who take advantage of the app’s features to advertise and sell their products.

Most of the content on Xiaohongshu is in Chinese and the app doesn’t have a simple way to auto-translate the posts into English.

At a time of a strained U.S.-China relationship, some new Chinese-American friendships are budding on an app that until now has had few international users.

“I like that two countries are coming together,” said Sarah Grathwohl, a 32-year-old marketing manager in Seattle, who made a Xiaohongshu account on Sunday night. “We’re bonding over this experience.”

Granthwohl doesn’t speak Chinese, so she has been using Google Translate for help. She said she isn’t concerned about data privacy and would rather try a new Chinese app than shift her screentime to Instagram Reels.

Another opportunity for bonding was a photo of English practice questions from a Chinese textbook, with the caption, “American please.” American Xiaohongshu users helped answer the questions in the comments, receiving a “thank u Honey,” from the person who posted the questions.

By Monday evening, there have been more than 72,000 posts with the hashtag #tiktokrefugee on Xiaohongshu, racking up some 34 million views.

In an English-language post titled “Welcome TikTok refugees,” posted by a Shanghai-based Xiaohongshu user, an American user responded in Chinese with a cat photo and the words, “Thank you for your warm welcome. Everyone is so cute. My cat says thanks, too.” The user added, “I hope this is the correct translation.”

Some Chinese users are also using the livestreaming function to invite TikTok migrants to chat. One chat room hosted by a Chinese English tutor had more than 179,900 visits with several Americans exchanging cultural views with Chinese users.

ByteDance-owned TikTok isn’t available in China but has a Chinese sister app, Douyin. American users can’t download Douyin, though; unlike Xiaohongshu, it is only accessible from Chinese app stores.

On Xiaohongshu, Chinese users have been sharing tutorials and tips in English for American users on how to use the app. Meanwhile, on TikTok, video clips have also multiplied over the past two days teaching users the correct pronunciation of Xiaohongshu—shau-hong-SHOO—and its culture.

Xiaohongshu may be new to most Americans, but in China, it is one of the most-used social-media apps. Backed by investors like Chinese tech giants Tencent Holdings and Alibaba Group , Xiaohongshu is perhaps best described as a Chinese mix of Instagram and Reddit and its users increasingly treat it as a search engine for practical information.

Despite its Little Red Book name, Xiaohongshu has little in common with the compilation of Mao Zedong ’s political writings and speeches. In fact, the app aspires to be a guidebook about anything but politics.

Conceived as a shopping guide for affluent urbanites in 2013, Xiaohongshu has morphed into a one-stop shop for lifestyle and shopping recommendations. Every day, its more than 300 million users, who skew toward educated young women, create, share and search for posts about anything from makeup tutorials to career-development lessons, game strategies or camping skills.

Over the years, Xiaohongshu users have developed a punchy writing style, with posts accompanied by images and videos for an Instagram feel.

Chinese social-media platforms are required to watch political content closely. Xiaohongshu’s focus on lifestyle content, eschewing anything that might seem political, makes it less of a regulatory target than a site like Weibo , which in 2021 was fined at least $2.2 million by China’s cyberspace watchdog for disseminating “illegal information.”

“I don’t expect to read news or discussion of serious issues on Xiaohongshu,” said Lin Ying, a 26-year-old game designer in Beijing.

The American frenzy over a Chinese app is the reverse of a migration in recent years by Chinese social-media users seeking refuge from censorship on Western platforms , such as X, formerly known as Twitter, or, more recently, BlueSky.

Just like TikTok users who turn to the app for fun, Xiaohongshu users also seek entertainment through livestreams and short video clips as well as photos and text-posts on the platform.

Xiaohongshu had roughly 1.3 million U.S. mobile users in December, according to market-intelligence firm Sensor Tower, which estimates that U.S. downloads of the app in the week ending Sunday almost tripled compared with the week before.

Sensor Tower data indicates that Xiaohongshu became the top-ranked social-networking and overall free app on Apple’s App Store and the 8th top-ranked social app on the Google Play Store on Monday, “a feat it has never achieved before,” said Abe Yousef, senior insights analyst at Sensor Tower.

Run by Shanghai-based Xingin Information Technology, Xiaohongshu makes money primarily from advertising, according to a Xiaohongshu spokeswoman. The company was valued at $17 billion after its latest round of private-equity investment in the summer, according to research firm PitchBook Data.

Not everyone is singing kumbaya. Some Chinese Xiaohongshu users are worried about the language barrier. And some American TikTok users are concerned about data safety on the Chinese app.

But many are hoping to build bridges between the two countries.

“Y’all might think Americans are hateful because of how our politicians are, but I promise you not all of us are like that,” one American woman said on a Sunday video she posted on Xiaohongshu with Chinese subtitles.

She went on to show how to make cheese quesadillas using a waffle maker.

The video collected more than 11,000 likes and 3,000 comments within 24 hours. “It’s so kind of you to use Chinese subtitles,” read one popular comment posted by a user from Sichuan province.

Another Guangdong-based user commented with a bilingual “friendly reminder”: “On Chinese social-media platforms please do not mention sensitive topics such as politics, religion and drugs!!!”

Inflation, Rising Rates Curb Global Economic Growth

Slower reported growth due to rising prices and concerns over interest rates, survey finds.

Chinese users of Xiaohongshu, or Little Red Book, welcome Americans fleeing a feared TikTok ban