Economy

Optimistic Outlook for Global Manufacturing

May 4, 2021

Global manufacturing accelerated in April, strengthening to its best reading since April 2010 for the J.P. Morgan Global Manufacturing PMI. The PMI rose to 55.8 from 55.0 in March. Of the 24 nations covered by the index as of April 23, only the Philippines, Mexico and Myanmar remained in contraction.

“The latest PMI surveys show how the gradual unwinding of COVID-19 restrictions in many parts of the world is driving an accelerated upturn in manufacturing activity,” said Olya Borichevska, Global Economist at J.P. Morgan. “Rates of expansion in output and new orders were the strongest in over a decade, supporting renewed job creation. Constraints are still being felt across global supply-chains, however, with raw material delivery times lengthening and the resulting shortages leading to increased inflationary pressures. Input costs rose at the fastest pace in a decade, leading to a series-record increase in factory gate prices.”

The global outlook for manufacturing was optimistic and among the best in the series history, reported J.P. Morgan.

The Eurozone PMI set a record high of 62.9 in April led by a new PMI record of 67.2 for the Netherlands and a strong showing of 66.2 for Germany. Growth was broad-based across markets with improvement in investment goods the strongest ever recorded, said IHS Markit. Consumer goods had a marked improvement but lagged behind investment and intermediate goods. New orders rose sharply due to surges in both domestic and export demand. Supply chain deterioration and raw material shortages limited production growth somewhat and increased backlogs at factories. “The consequence of demand running ahead of supply is higher prices being charged by manufacturers, which are now also rising at the fastest rate ever recorded by the survey,” said IHS Markit Chief Business Economist Chris Williamson. “The big uncertainty is how long these upward price pressures will persist, and the extent to which these higher charges for goods and services will feed-though to consumers.”

The Caixin China General Manufacturing PMI rose to 51.9 from an 11-month low of 50.6 in March for the strongest improvement since December 2020. Growth in orders and production led to longer backlogs, prompting an increase in employment for the first time in five months. Prices continued to accelerate for raw materials, which were passed on in higher costs to customers. Output expectation was “markedly upbeat” in April, despite optimism edging down to a three-month low, said Caixin.

Manufacturing growth slowed to a near standstill in Russia during April. The IHS Markit PMI registered 50.4, down from 51.1 in March. The new orders index contracted for the first time this year as domestic and export demand weakened. Supply chain disruptions and raw material shortages pushed up input costs in April, resulting in a sharp rise in output charges and longer lead times. “Employment continued to rise at only a fractional pace in April, as backlogs of work and pressure on capacity remained muted,” said IHS Markit. Despite challenges in April, manufacturer confidence rose to its highest level since January 2020.

Canada and the U.S. continued to see robust growth in April. In Canada, the PMI of 57.2 indicated manufacturing’s third-strongest growth in operating conditions since the survey began in October 2010. Output and new orders rose sharply despite a surge in COVID-19 cases and restrictions. Manufacturers continued to struggle with longer supplier delivery times and higher prices and shortages for raw materials. Higher costs led to increased factory gate prices. Inventory restocking was at a near-record pace, said IHS Markit.

Manufacturing demand jumped in the U.S. last month due to higher orders at home and abroad. The PMI leapt to 60.5 in April—its highest level since May 2007.

“U.S. manufacturers reported the biggest boom in at least 14 years during April. Demand surged at a pace not seen for 11 years amid growing recovery hopes and fresh stimulus measures,” said Williamson at IHS Markit. “Supply chain delays worsened, however, running at the highest yet recorded by the survey, choking production at many companies. Worst affected were consumer-facing firms, where a lack of inputs has caused production to fall below order book growth to a record extent in over the past two months as household spending leapt higher. Suppliers have been able to command higher prices due to the strength of demand for inputs, pushing material costs higher at a rate not seen since 2008. Attempts to expand capacity via hiring extra staff gained further momentum, though in some cases staff shortages were an additional constraint on production. However, with confidence in the outlook continuing to run at one of the highest levels seen over the past seven years, buoyed by vaccine roll-outs and stimulus, further investment in production capacity should be seen in coming months, helping alleviate some of the price pressures.“

Mexico showed signs of emerging from a 14-month contraction in April. The IHS Markit Mexico Manufacturing PMI rose to 48.4 from a reading of 45.6 in March. Orders and output continued to decline but at a slower rate. Supply-chain delays, raw material shortages and the recent blockage at the Suez Canal contributed to the sharpest increase in input costs since July 2018, said IHS Markit, along with thwarting attempts to build inventory. Optimism reached a two-month high on hopes that COVID-19 restrictions will be lifted soon.