Global Manufacturing PMI Nearly Stagnant in September

Said IHS Markit: “Global manufacturing remained firmly stuck in a low gear in September. The latest batch of PMI survey data are roughly consistent with global manufacturing output rising at a modest 2% annual pace. That’s better than the near-stagnation seen earlier in the year, but remains disappointingly modest, hampered in particular by lacklustre global trade flows and ongoing sluggish production in emerging markets.”

The Eurozone PMI edged up almost a point to 52.6 with output, new orders, new export business, and employment levels improved. Six of the eight countries in the zone had higher PMIs. Chris Williamson, Chief Business Economist at IHS Markit expressed concern over the unevenness of the upturn, with the region relying on Germany and its neighbors. Germany had its second best manufacturing month in two and a half years, followed by stronger growth in Austria and the Netherlands.

United Kingdom manufacturing expanded at its quickest pace since May 2014 pushing its third quarter average to 52.3. The headline PMI was at 55.4 in September with the domestic market driving new business. New orders from abroad took advantage of the weaker sterling exchange rate, accelerating export orders to their highest level since January 2014.

Russia’s manufacturing PMI rose to 51.1 in September up from 50.8 indicating a marginal improvement in the factory sector. Production increased at its fastest rate in 22 months on domestic demand for goods. New export orders continued to contract in September at a rate that was the most severe since July 2014. Markit economist Samuel Agass said that if “the upturn in production can be sustained, then the sector looks set to enjoy a strong finish to 2016.”

China saw a small increase in output in total new orders in September but overall there was little change in manufacturing conditions from a stagnant August. New export orders stabilized after nine months of decline. The PMI edged out of contraction to a reading of 50.1. Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group commented, “The readings for the manufacturing PMI over the past three months seem to indicate that the economy has begun to stabilize. But given that the growth rate of fiscal income has slowed recently while expenditures have swung, there is insufficient momentum to drive future economic growth, and there is a risk that industrial output may decline.”

Japan manufacturing emerged from contraction with a PMI reading of 50.4 in September. Production rose for the second month and the decline of total new orders was at the weakest rate in eight months of contraction. Exports rose for the first time since January suggesting order decline was due to weak domestic demand. Imported raw material prices were lower in September bringing down selling prices.

Brazil was at the bottom of the rankings for manufacturing growth in September, improving slightly to a PMI of 45.7 from 46 in August and remaining in contraction for the twentieth consecutive month. Good news was scarce in the components of the PMI. IHS Markit Economist Pollyanna De Lima called the latest data “disappointing” as it emphasized Brazil’s “ongoing struggles, with incoming new work sinking further amid bleak conditions.”

In North America, Mexico manufacturing growth was at a four-month high in September. The PMI rose one point to 51.9 indicating renewed momentum. Production improved moderately as did new order growth. New export orders grew at the strongest pace since May indicating a sustained rebound in orders after falling in July. The weaker exchange rate put upward pressure on raw material prices, resulting in a faster pace of factory gate price inflation.

Canada manufacturing slowed in September as production volumes expanded at the weakest pace in seven months. New orders fell, partly driven by a sharper drop in export sales, said IHS Markit. The headline PMI was at 50.3 for the month, falling from 51.1 in August. Tim Moore, Senior Economist at IHS Markit commented, “September’s survey data highlight another month of disappointingly weak manufacturing output growth, and the renewed drop in new orders raises concerns that this soft patch may continue into the final quarter. Sluggish external demand appears to have held back new business gains across the manufacturing sector, in contrast to the exports outperformance at the start of 2016.” Moore also noted that transportation disruptions and global shipping delays, in particular, have negatively affected supplier performance.

U.S. manufacturers saw new orders and output expand at a slower pace in September. The Markit U.S. Manufacturing PMI dropped from 52.0 in August to 51.5 in September. Production was at a three month low. New order expansion was the slowest seen in 2016 and was attributed to concern over the presidential election. Export orders fell slightly in September as a result of the strong dollar. Growth in September growth was mostly driven by the consumer helped by low interest rates, low inflation and a solid labor market, said Chris Williamson. “Business spending, in contrast, is being subdued by the headwinds of uncertainty about the economic outlook, cost-driven inventory reduction and the strong dollar, the latter linked to yet another drop in exports,” he added.