Global Manufacturing PMI Stalls in November

The new orders index was unchanged from October and production, although slightly higher, was at one of the weakest levels of growth seen in two-and-a-half years. International trade flow disruptions were blamed for lackluster orders. Increased new export orders in the U.S. and Japan offset export reductions in the Euro region and the UK.

Eurozone manufacturers reported falling demand and only marginal growth in new orders. The November Eurozone PMI slipped to 51.8 from 52.0 in October. Overall, production output rose, which helped to alleviate backlogs and build inventories of finished goods. Input prices continued to rise and pricing pressure was unabated, especially in Germany and Austria. Business optimism was considered “gloomy” as manufacturers worried about the auto industry and politics.

“The darker outlook is linked to trade wars and tariffs, as well as intensifying political uncertainty, and has led to increased risk aversion and a commensurate cutting back on expenditures, notably for investment,” commented Chris Williamson, Chief Business Economist at IHS Markit. “Producers of investment goods such as plant and machinery reported the steepest drop in demand in November, with reduced capital spending by companies compounded by ongoing disruption of business in the autos sector.”

Williamson added, “Hopes that the soft patch may prove short-lived are countered by business optimism about prospects for the year ahead remaining among the gloomiest seen since the sovereign debt crisis in 2012, suggesting companies are bracing themselves for further weak demand in the coming months.”

China manufacturing continued to languish just above the neutral point on the Caixin China General Manufacturing PMI. The PMI posted 50.2 in November, up from 50.1 in October. A marginal increase in new orders was noted due to government polices to support the private sector. Export orders remained in contraction. Production slowed to a PMI of 50, its lowest level since June 2016 as unsold stocks of finished goods accumulated.

Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group, said: “Overall, domestic demand across the manufacturing sector improved in November, while overseas demand was still subdued. Production slowed, confidence was relatively stable, capital turnover was improved, and upward pressure on industrial product prices eased. China’s economy was weak, but did not show significant signs of deterioration.”

Manufacturers in Russia saw the healthiest month for manufacturing since July 2017. The PMI of 52.6 was driven by new business, higher output, and a focus to reduce backlogs. Employment levels rose at the quickest rate since the beginning of last year. Increases in input prices and output charges accelerated due to a strong U.S. dollar and higher fuel costs. Input buying was weaker due to longer lead times and higher costs for raw materials. Business optimism was strong as manufacturers looked forward to launching new product and expanding into new markets.

The South Korea manufacturing PMI fell into contraction in November posting a reading of 48.6. Sales at home and abroad fell markedly, prompting firms to cut production. Input prices rose during the month, but weak demand made it difficult to pass the costs through in output charges. Trade volumes dropped with key trading partners, and panelists were particularly concerned about prospects for the automotive sector. Business confidence fell to a 27-month low.

Business conditions in North America were mixed in November. Mexico saw its PMI fall into contraction at 49.7, down from 50.7 in October. Weaker domestic demand dampened production and job creation. New export orders, however, expanded solidly, said IHS Markit. Confidence was buoyed by the change in Mexico’s government and new product launches.

Canadian manufacturers saw a positive month, with the PMI rising to a three-month high as growth improved for new orders and production. The PMI posted a reading of 54.9 compared to 53.9 in October. Supply chain pressures continued with panelists citing low stocks at suppliers and shipping delays from Asia. Input costs rose at a slower rate, resulting in softer factory gate price inflation, said IHS Markit.

“Survey respondents commented on a boost to sales from improving U.S. economic conditions,” said Christian Buhagiar, President and CEO at the Supply Chain Management Association (SCMA). “However, there were also signs that worldwide trade frictions continued to hold back client demand, with new export order growth still weaker than seen on average in the first half of the year. Canadian manufacturers signaled that business optimism remained close to the lowest seen over the past two years, which many linked to heightened global economic uncertainty.”

Manufacturing conditions in the United States were strong in November despite the IHS Markit PMI dipping to a three-month low. Production continued to increase and new orders saw a sharp jump due to new product launches and new export orders. Input buying spiked as firms worried about further tariffs and increases in raw material costs. “Demand for inputs continued to outstrip supply,” said IHS Markit. Tariffs and supplier shortages led to higher raw material costs that were partly passed through to clients. Confidence was at its weakest rate since September 2017 with panelists concerned about the sustainability of new order growth.

“The survey acts as a reliable guide to the official manufacturing data and suggests that factory output is growing at an annualized rate of around 1.5 percent so far in the fourth quarter, providing a material but by no means impressive contribution to GDP,” said Williamson. “As such, the data corroborate the flash PMI’s signal that the economy will likely see growth slow to a 2.5 percent rate in the fourth quarter. In a further sign that growth has peaked, business optimism about the year ahead waned to the lowest for over a year, albeit with the proportion of companies expecting output to be higher in a year’s time outnumbering those expecting a decline by 36 percent to 3 percent.”