Economy
Global Manufacturing Weakens in March
Written by Sandy Williams
April 2, 2019
Global manufacturing had another weak month in March. The J.P. Morgan Global Manufacturing PMI was unchanged from February at 50.6. with components of the index either flat or seeing only slight changes.
Output and new export orders inched downward. Prices were relatively stable in March with no change on the input prices index and output prices edging up to 52.0 from 51.9.
Despite a lackluster month, business optimism increased modestly for the consumer and intermediate good sectors. The investment goods sector, however, saw business sentiment fall to its lowest level in six years. Emerging markets, on average, were more confident about future business conditions than developed nations.
“The performance of the global manufacturing sector remained weak in March as output edged higher, new orders stagnated and new export business contracted,” commented David Hensley, Director of Global Economic Coordination at J.P. Morgan. “Expansions in output and new work at consumer goods producers were the main bright spots, offsetting the ongoing downturns in the intermediate and investment goods sectors. Growth will need to be restored to these industries if global manufacturing is to provide less of a drag on global GDP in the months ahead.”
Manufacturing conditions in the Eurozone contracted to the greatest extent in nearly six years. The IHS Markit Eurozone Manufacturing PMI posted at 47.5 in March from 49.3 in February. Austria’s PMI of 50.0 was a 48-month low for the nation. France, Germany and Italy all posted PMIs below the neutral mark of 50 with the latter two at 70-month and 80-month lows, respectively. Weak demand led to declines in new orders and production, despite cost pressures softening.
“The March PMI data indicate that the Eurozone’s manufacturing sector is in its steepest downturn since the height of the region’s debt crisis in 2012,” said Chris Williamson, chief business economist at IHS Markit. “Looking at the forward-looking indicators, downside risks have intensified, and the trend could clearly deteriorate further in the second quarter…. Expectations of output for the coming year are also the gloomiest since 2012.”
“Concerns over trade wars, tariffs, rising political uncertainty, Brexit and – perhaps most importantly – deteriorating forecasts for the economic environment both at home and in export markets, were widely reported to have dampened business activity and confidence,” added Williamson.
Manufacturing in China finished the first quarter on a high note, said IHS Markit. Output and new orders increased at a quicker rate in March and employment levels increased for the first time in more than five years. The Caixin China General Manufacturing PMI pulled out of February’s contraction to post a reading of 50.8. New export orders resumed growth. Firms increased input inventory for the first time in four months, although stocks of finished goods contracted only modestly. Input costs rose slightly and were passed on to clients as higher output charges.
“Overall, with a more relaxed financing environment, government efforts to bail out the private sector and positive progress in Sino-U.S. trade talks, the situation across the manufacturing sector recovered in March,” commented Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group.
Russia saw its highest PMI reading since January 2017, increasing from 50.1 in February to 52.8 in March. Rates of output and new business growth accelerated significantly last month despite a third month of decline for exports. Higher input prices were blamed on higher VAT and supplier prices and, as a result, output charges rose sharply. Buying activity rose as manufacturing firms sought to replenish falling pre-production inventories. Improvements in efficiency and new product developments contributed to growing optimism among manufacturers.
The manufacturing sector in Mexico made a nice recovery in February, but faltered in March. New orders were flat and export sales improved only marginally. Production contracted as companies cited subdued sales, issues in production lines and competitive pressures. Cost inflation softened for inputs and manufacturers reduced output charges in an effort to attract new business. The IHS Markit Mexico Manufacturing index fell to 49.8 in March from a 13-month high of 52.6 in February.
The global slowdown in manufacturing impacted Canadian production in March as new export sales fell at their fastest rate in four years. Output was reduced as client demand weakened and backlogs of work were completed. Input buying decreased for the first time in 16 months, easing pressure on supply chains and contributing to lower input cost inflation. At 50.5 in March, the IHS Markit Canada Manufacturing PMI was down from 52.6 in February and only slightly above the neutral 50.0 mark.
The IHS Markit U.S. Manufacturing PMI fell to its lowest level since June 2017, posting a 52.4 in March, down from 53.0 in February. Output grew at its weakest rate as new business growth slowed last month. New export orders rose only marginally with firms noting that tariffs and global trade tensions dampened foreign demand. Pre- and post-production inventories rose in March as input buying declined. Price inflation eased during the month, but firms that reported a rise in costs cited the ongoing impact from tariffs. Employment levels continued to rise, but with firms reporting difficulty finding qualified workers.
“A further deterioration in the manufacturing PMI suggests the factory sector is acting as an increasing drag on the U.S. economy,” commented Williamson. “The March survey is consistent with production falling at a quarterly rate of 0.6 percent, according to historical comparisons with official data. Encouragingly, companies report that at least some of the slowdown is due to capacity constraints, notably in terms of skill shortages.”
“However, things may well get worse before they get better, as the forward-looking indicators are a cause for concern,” he added. “New order growth has fallen close to the lows seen in the 2016 slowdown, often linked to disappointing exports, tariffs and signs of increasing caution among customers. The ratio of new orders to existing inventory has meanwhile fallen to its lowest since June 2017, suggesting the production trend may weaken further in April.”
Sandy Williams
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