Global Manufacturing at Three Year High in December

Twelve of the 20 countries surveyed reported expansion with the strong improvement in the Netherlands and Austria. The sharpest declines were in Brazil and Malaysia.

Seven of the eight countries reporting declining market conditions in December were emerging economies. Exports were a key element in the divergence of conditions between developed and emerging economies, said IHS Markit. Exports were stagnant in emerging markets while exports for the developed world rose.

Stronger production was accompanied by higher commodity and raw material costs. Average input costs in December rose at the fastest rate in five and a half years with emerging markets seeing prices increasing at a significantly higher rate than developed markets. The UK and Eurozone also saw prices spike due to weaker exchange rates against the U.S. dollar.

Employment levels fell off in the emerging markets as higher costs for inputs and stagnant exports reduced factory headcounts while, in contrast, developed countries added more workers to meet higher production.

Eurozone

Good news for manufacturers in the Eurozone. The December PMI rose to 54.9 in December from 53.7 the previous month. The average for the quarter was solidly above third quarter and the average PMI reading for 2016 (52.5) was the highest annual average since 2010, said IHS Markit. The PMI data indicates factory output growing at a 4 percent annual rate.

Improvement was seen across all seven countries with surges in production from new orders domestically and abroad. Backlogs hit a 68-month record resulting in more job creation in the region. Input costs were higher due to the depreciation of the Euro and higher global commodity prices. Input prices were partially passed on to clients in December.

Commenting on the final manufacturing PMI data, Chris Williamson, Chief Business Economist at IHS Markit said: “Much of the upturn in demand and the rise in price pressures is attributable to the depreciation of the euro, which companies often cited as making exports more competitively priced but also hiking import prices, exacerbating rising global prices for commodities such as oil. While the strong end to 2016 is encouraging news the manufacturing revival clearly remains vulnerable to political risk. In particular, elections in the Netherlands, France and Germany represent potential key flashpoints which could lead to a marked intensification of political uncertainty in the region in 2017. Hence our expectation that Eurozone economic growth will slow slightly in 2017, down from 1.7% in 2016 to 1.4%.”

Russia

Russia’s domestic market drove substantial increases in production, new orders, and employment in December. The manufacturing PMI inched to a 69 month high at 53.7, up from 53.6 in November. Export orders continued to decline but the rate was the slowest seen in 40 months. Higher metal prices led manufacturers to raise their selling prices. Lead times were longer in December and panelists noted delays receiving imported goods. Employment levels rose along with new order growth last month.

Samuel Agass, Economist at IHS Markit, said: “A healthier labour market, substantial production growth and robust domestic demand fuelled economic growth and provided goods producers with the best possible end to 2016. Consequently, this month’s performance capped off the strongest quarter in over five-and-a-half years and was a far cry from the faltering start of the year.”

China

Manufacturers had a strong December in China. Production increased at the fastest rate in almost six years supported by sustained new business. Order books expansion was the strongest since July 2014 supported by improved domestic demand. Increased production led to higher input buying accompanied by rising input prices and output charges. The Caixin China General Manufacturing PMI rose to 51.9 from 50.9 in November.

“The Chinese manufacturing economy continued to improve in December, with the majority of sub-indices looking optimistic. However, it is still to be seen if the stabilization of the economy is consolidated due to uncertainties in whether restocking and consumer price rises can be sustainable,” Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group.

Japan

The Nikkei Japan Manufacturing PMI posted 54.4 in December from 51.3 in November. Production and new orders expanded at the sharpest rates of the year said Amy Brownbill, economist at IHS Markit.

“The stronger PMI data are in line with the IHS forecasts for IP growth in November and December, with the annual rate of expansion set hit 3.8% by the end of the year,” said Brownbill. “Manufacturers were also more optimistic towards taking on additional workers, with job creation ticking up to a 32-month high. However, input prices increased at the sharpest rate since July 2015, with panellists mentioning the recent weakness of the yen driving up imported raw material costs.”

United States

The December Markit US Manufacturing PMI hit a 21-month high in December with robust growth in new orders and production volumes. The PMI rose to 54.3 from 54.1 in November driven by stronger rates of employment growth and inventory building. New order growth was down slightly but still close to the strongest seen in two years. Export sales continued to be restrained due to a strong dollar and intense competition in key export markets, said Markit.

Commenting on the final PMI data, Chris Williamson, Chief Business Economist at IHS Markit said: “The manufacturing sector ended 2016 on a buoyant note, with promising signs that growth could pick up further in 2017.”

Williamson added, “The upturn is being driven almost entirely by rising demand from domestic customers, with exports stymied by the dollar’s recent surge. The improvement in the survey data raises hopes that the official data will soon likewise show signs of the manufacturing sector’s recent malaise lifting. The latest official data showed manufacturing output stagnant compared to the start of the year, but the December PMI is consistent with production growing at an annualised rate approaching 4%.”

Canada

Canadian manufacturers were happy to see stronger new order growth boosting the PMI to 51.8 from 51.5 in November. Although a modest improvement overall, it was the best reading since July. Orders, production and job creation all increased in December. Survey panelists noted new business spending in the energy and automotive sectors. Exports increased marginally but continued their rebound from third quarter 2016 declines. Post production inventories continued the decline that began in April. Raw material inventories were also down although only slightly. Rising commodity prices and an unfavorable exchange rate pushed input cost inflation to its strongest level in two and a half years.

Mexico

Manufacturing growth has been slowing in Mexico with the December PMI slipping almost to neutral at 50.2 from 51.1 in November. Manufacturing output declined marginally following three months of expansion. Softer domestic demand and economic uncertainty led to the weakest new order growth in three years. Export sales, however, continued to grow for the fifth month as survey respondents noted stronger sales to South America.

Tim Moore, senior economist at IHS Markit, said: “December’s PMI data indicated another loss of momentum for Mexico’s manufacturing sector, with relatively subdued domestic demand leading to the weakest upturn in new orders for over three years. Survey respondents commented on cautious spending patterns among clients and heightened global economic uncertainty.”