Global Manufacturing Shows Signs of Improvement

In the Eurozone, only Greece and France saw manufacturing expansion during November. The other six countries covered under the Eurozone PMI remained in contraction with Germany last on the list with a PMI of 44.1. The overall PMI extended its duration in contraction for a 10th month with a posting of 46.9, a one point improvement from October. Production and new orders continued to fall but at a milder rate. Export orders fell for a 14th month. Manufacturers shied away from purchasing, preferring to use up existing stocks. Input prices fell sharply, but with weak demand and competitive pressure, firms cut their output charges for a fifth month.

Chris Williamson, chief business economist at IHS Markit, said there are signs the worst is over for the euro area, reflected by a marked upturn in business sentiment. “Producers’ renewed optimism in part reflects reduced concerns over trade wars,” said Williamson. “We nevertheless still need to see a further notable easing in the rate of loss of orders before getting too excited about the prospect of an imminent return to growth for manufacturing.”

Manufacturing conditions improved for a fourth consecutive month in China, as new business rose sharply supporting an increase in production. The Caixin China General Manufacturing PMI inched up to 51.8 in November from 51.7 in October. Export orders rose for a second month. The gauge for output charges inched up. Raw material costs were still relatively high causing output charges to increase slightly. In general, prices of industrial products remained stable.

“China’s manufacturing sector continued to recover in November, with both domestic and overseas demand rising and the employment sub-index returning to expansionary territory for the second time this year,” said Dr. Zhengsheng Zhong, director of Macroeconomic Analysis at CEBM Group. “However, business confidence remained subdued as concerns about policies and market conditions persisted…. If trade negotiations between China and the U.S. can progress in the next phase and business confidence can be repaired effectively, manufacturing production and investment is likely to see a solid improvement.”

Manufacturing conditions in Russia deteriorated further driven by weaker demand. The IHS Markit Manufacturing PMI registered 45.6 in November for the sector’s worst performance in more than 10 years. New orders fell at their steepest rate since March 2009 at home and abroad. Production fell sharply along with employment levels. IHS Markit predicts a slowdown in output for the fourth quarter that will continue into early 2020.

Weak demand drove the Mexico manufacturing PMI down to 48.0 in November after posting a 50.4 in October. New orders and new export orders fell sharply during the month resulting in cutbacks in production and input buying. Business confidence was at its lowest level in the series history as surveyed firms expressed concerns about the market and domestic economy.

Canada manufacturers saw business conditions improve for the third month, albeit only slightly. The PMI rose to 51.4 from 51.2 in October. A modest increase in production was supported by greater domestic demand that was offset by weaker export sales and competitive pressures. Finished goods inventories were trimmed and input stocks rose along with longer delivery times from suppliers. The recent rail strike was blamed for supply chain disruption. Business optimism was at its joint-lowest level since February 2016.

“The manufacturing sector has started to find its feet again after a soft patch during the third quarter of the year. November data reveals another modest recovery in manufacturing performance, led by faster growth among consumer goods producers,” commented Tim Moore, economics associate director at IHS Markit. “Lower export sales were the main source of concern in November, especially within the investment goods category. That said, Canadian manufacturers often noted that they expect improving U.S. demand and a reduction in global trade frictions to help deliver a turnaround in export demand.”

The U.S. IHS Markit Manufacturing PMI reached a seven-month high of 52.6 due to strong growth of new orders at home and abroad. Production increased to match along with an increase in workforce numbers. Input and output costs rose modestly with some firms linking higher raw material prices to supply shortages and tariffs.

“A third consecutive monthly rise in the PMI indicates that U.S. manufacturing continues to pull out of its soft patch,” said Williamson. “Some caution is needed, as these improved survey numbers merely translate into very subdued growth in comparable official gauges of manufacturing production and factory payrolls. Business sentiment also remains worryingly subdued, with expectations about future output growth well down on earlier in the year and running at one of the lowest levels seen since comparable data were first available in 2012.

“Firms remain very concerned about the disruptive effects of tariffs and trade wars in particular, both in terms of rising prices and weakened demand, though the survey also saw further worries among manufacturers that the economy could slow in the upcoming presidential election year as customers delay spending and investment decisions.”