Global Manufacturing PMI Highest Since November

Chris Williamson, Chief Economist at Markit, said, “The upturn in the PMI signals an acceleration in annual global manufacturing output growth to just under 2%, up from stagnation in recent months. Although the UK PMI suffered its largest fall since 2008 and Japan’s exporting producers once again struggled to live with a strong currency, growth slowed only slightly in the Eurozone, the US enjoyed a marked improvement in performance and China’s factories showed a tentative return to growth.”

Manufacturing in the European Union continued to expand for the 37th month although slipping to 52.0 in July from 52.8 in June. The pace of new order growth softened in July, contributing to the drop in the headline PMI. Production remained steady in July with backlogs continuing to increase. Exports continued to grow but at a marginally slower pace, benefiting from the weaker euro exchange rate. Conversely, the exchange rate increased import costs, which when combined with higher oil prices, led to a higher average purchase price for the first time in a year. Output prices fell in July but at a weaker rate.

Of the seven EU nations in the survey, Germany led in PMI rank followed by Austria and the Netherlands. The PMIs for Italy and Spain were at 18 and 31 month lows, respectively, reflecting weaker increases in output and new orders. New export orders improved in France and Greece but output and general new business contracted.

Chris Williamson, Chief Economist at Markit said that although the pace of expansion eased in July, manufacturing growth continues to be steady. “The problem is that growth is looking increasingly lop-sided, which will worry policymakers and add to calls for further stimulus from the ECB,” said Williamson. Williamson noted deflationary pressures are easing and selling prices stabilizing, but that output and employment growth is primarily being driven by Germany.

The United Kingdom PMI was at its lowest level since February 2013, posting 48.2 in July as market uncertainty continues following the Brexit referendum. Production and new orders contracted although depreciation of the pound has aided new export orders. Purchase price inflation was at a five year high due to higher import costs and increased metal and commodity prices.

Said Rob Dobson, Senior Economist at Markit, “The weakening order book trend and upswing in cost inflation point to further near-term pain for manufacturers. On that score, the weak numbers provide powerful arguments for swift policy action to avert the downturn becoming more embedded and help to hopefully play a part in restoring confidence and driving a swift recovery.”

China manufacturing returned to growth in July with the PMI at 50.6 from 48.6 in June. New business saw a moderate improvement due to stronger domestic demand. Overall orders rose for the first time since March although new export orders declined marginally. Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group commented, “The Chinese economy has begun to show signs of stabilizing due to the gradual implementation of proactive fiscal policy. But the pressure on economic growth remains, and supportive fiscal and monetary policies must be continued.”

Japan manufacturing conditions continued to worsen but at a slower pace. The July PMI reading was 49.3, up from 48.1 in June. Exports contracted for the six month in a row for the sharpest decline since January 2013. Reduced trade volume was linked by firms to “terrorism, European economic demand weakness and a loss of global competitiveness resulting from the appreciation of the yen against the dollar.”

Russia experienced another downturn in manufacturing in July due to decreased demand for Russian goods. The PMI registered 49.5, falling from 51.5 in June. The PMI was considered in line with the average of 49.4 for the year so far. Production output and employment levels weakened in response to the decline in new orders.

Brazil manufacturing conditions continued to deteriorate in July but the PMI did rise from 43.2 in June to a four month high of 46.0. Production, new orders, input buying and employment all fell as Brazil continues to struggle with difficult economic conditions.

In North America, Canada saw a modest rise in output, new orders, and employment but demand weakened for exports. The PMI was up only slightly to 51.9 from 51.8 but continues to rebound from a weak start in 2016. “Greater demand from domestic sources helped to offset slower export sales in July, especially for manufacturers of consumer goods. However, among investment goods producers the uncertain global economic outlook and weak energy sector spending continued to cast a shadow over business expansion plans and job hiring,” commented Tim Moore, senior economist at Markit.

Mexico experienced a slowdown in the manufacturing sector with the PMI falling to a 33-month low at 50.6 in July. New order growth was the weakest in nearly three years. Exports orders declined moderately in July, for their first drop since October 2014 and fastest decline in five years. Raw material prices continued to climb due to the exchange rate depreciation.

The Markit U.S. Manufacturing PMI rose to 52.9 from 51.3 in June. Domestic demand was robust and export sales expanded at the fastest pace since September 2014. Job creation rose at faster pace due to new business and launch of new products.

Chris Williamson, Chief Economist at Markit commented, “The stronger manufacturing PMI survey data for July fuel hopes that the sector will act as less of drag on the economy in the third quarter after a disappointing first half of the year.”

About the PMI: The Purchasing Managers’ Index™ (PMI™), published monthly by IHS Markit, is a composite index based on five of the individual indexes with the following weights: New Orders – 0.3, Output – 0.25, Employment – 0.2, Suppliers’ Delivery Times – 0.15, Stocks of Items Purchased – 0.1, with the Delivery Times Index inverted so that it moves in a comparable direction. The diffusion indexes show the prevailing direction of change. An index reading above 50 indicates an overall increase in growth, below 50 an overall decrease.