March PMI a Sign of Global Manufacturing Recovery

“The performance of the global manufacturing sector continued to strengthen in March consistent with the idea that global activity is rebounding as vaccinations become more available,” commented Olya Borichevska, Global Economist at J.P. Morgan.

Manufacturers in the Eurozone reported a great month in March. The PMI soared to 62.5 from February’s reading at 57.9, for its best improvement in 24 years. The region has now stayed out of contraction for nine consecutive months. Growth was broad-based across the region, said IHS Markit with month-over-month gains across all market groups. Strong demand drove record increases in production and output including a ninth month of increased export orders. The surge in demand further strained supply chain lead times already under pressure from product shortages and logistic challenges. Input prices rose at their fastest rate in a decade, particularly in Austria, Germany and the Netherlands.

“Encouragingly, the recent expansion of output means production in the eurozone is likely to have surpassed its pre-COVID peak, and hiring has already accelerated markedly as producers seek to build additional capacity to meet higher demand,” said Chris Williamson, Chief Business Economist at IHS Markit.

Manufacturing conditions improved modestly in China during March, according to the Caixin China General Manufacturing Index. The PMI retreated to 50.6 from 50.9 in February. New orders expanded but at a weaker rate with increased export orders offsetting fewer orders from domestic customers. Vendor delivery times continued to lengthen but at a softer pace in March. Raw material costs rose sharply resulting in the steepest rate of cost inflation in 40 months. Selling prices were increased to offset higher input costs.

“Overall, the manufacturing sector continued to recover in March, but the momentum of both supply and demand weakened,” commented Dr. Wang Zhe, Senior Economist at Caixin Insight Group. “Overseas demand largely improved. The sector remained under employment pressure. Manufacturing enterprises were still confident that the economy will continue to recover and that the pandemic will be brought under control, with the gauge for future output expectations exceeding the long-term average.”

Manufacturing momentum stalled in Russia last month. The IHS Markit Russia Manufacturing PMI edged downward to 51.1 in March from 51.5 in February. Higher input prices and raw material shortages were blamed for the loss of production momentum. New orders increased for a third month, but at a slower pace, with demand mostly from domestic clients as export orders continued to decline. Higher input prices were passed on in selling prices. Lead times lengthened to the greatest degree in more than 23 years due to transportation delays and supplier shortages. Inventories fell as input buying slowed because of supply chain challenges and elevated costs. Despite challenges, manufacturing optimism was at its second highest level since January 2020.

The IHS Markit Canada Manufacturing PMI jumped to 58.4 in March from 54.8 in February for its highest reading in over 10 years of data collection. A surge in demand, at home and abroad, boosted new orders and production. Pandemic-related material shortages and border restrictions continued to disrupt supply chains, and rising input costs were linked with high prices for lumber and metals. Employment levels rose in March as manufacturers attempted to keep up with orders. Backlogs increased at a near-survey-record pace, said IHS Markit. First-quarter performance was encouraging, and manufacturers expect industrial production growth in 2021.

Manufacturers in the U.S. had their second strongest improvement in business conditions since May 2007. New orders rose at their steepest rate since June 2014, although production was restrained by supply shortages and extraordinarily long supplier lead times. Accelerating input costs led to higher selling prices. Order backlogs lengthened at the fastest pace on record resulting in expansion of workforce numbers. Input buying increased in March to replenish preproduction inventories and mitigate future supplier delays.

“Pricing power has risen accordingly as demand outstrips supply; raw material prices are increasing at the sharpest rate for a decade and factory gate selling prices have risen to a degree not seen since at least 2007,” commented Williamson. “The fastest rates of increase for both new orders and prices were reported among producers of consumer goods, as the arrival of stimulus checks added fuel to a marked upswing in demand as the economy continued to pull out of the malaise caused by the pandemic.

“With business expectations becoming even more optimistic in March, further strong production growth looks likely in the second quarter, but the big question will be whether rising price pressures also become more entrenched.”

(Note: data for Mexico was not available at the time of publication.)

By Sandy Williams, Sandy@SteelMarketUpdate.com