Global manufacturing weakest in 28 months
Growth in the global manufacturing sector remained lacklustre during August. The rate of expansion in production volumes eased to the weakest seen in 28 months and the pace of increase in new business stayed close to recent lows. In the US factory output fell to a more than two-year low in August, but strong data on car sales and construction spending suggested the economy remained on a solid footing.
The slowdown in US manufacturing was reported in two separate PMI (purchasing managers' index) surveys — one from the Institute for Supply Management (ISM), the other from Markit, the London-based index firm.
Much of Asia led by China reported reduced activity as did the UK.
"It suggests that the recent eruption in uncertainty toward Chinese and global growth is beginning to affect US business decisions," said Millan Mulraine, deputy chief economist at TD Securities in New York, according to Reuters. "We look for the Fed to take a pass on raising rates this month as they continue to assess the incoming economic data for any evidence of fallout."
At 50.7 in August, the JPMorgan Global Manufacturing PMI – a composite index1 produced by JPMorgan and Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – fell to its lowest level since July 2013. Furthermore, the average so far in 2015 (51.3) is below the average for 2014 as a whole (52.3), suggesting that a solid rebound in growth will be needed if the sector is to even match last year’s tepid pace.
Manufacturing production increased for the thirty-third successive month in August. However, the rate of expansion was the weakest since April 2013, as the downturn in emerging markets accelerated and growth slowed in the developed world. The Czech Republic, Italy, Spain and Germany recorded the fastest rates of output expansion during August.
The US, due to its large relative size, was also a significant contributor to the latest increase in global manufacturing production, despite growth in the nation easing to a 19-month low. Conditions continued to strengthen in the Eurozone, with output growth accelerating to a 15-month high. The main drags on the global average were contractions in China, France, Taiwan, South Korea, Indonesia, Malaysia, Russia, Greece and Brazil.
There were some pockets of growth in Asia, however, with expansions in Japan, India and Vietnam. Inflows of new orders in the global manufacturing sector also rose only moderately during August. A faster rate of contraction in emerging markets (which also reported a drop in new export business) partly offset quicker new order growth across developed nations (who also saw export orders rise). Global manufacturing employment rose for the twenty-fifth successive month in August, although the rate of jobs growth eased closer to stagnation.
David Hensley, director of Global Economic Coordination at JPMorgan, said: “The August PMI surveys suggest that conditions in the global manufacturing sector remain relatively lacklustre, with growth staying stubbornly below its long-run trend and jobs growth slowing to near-stagnation. Price inflationary pressures are also muted, with input costs and selling prices showing little change during the month.”
Employment rose in the US (albeit at the slowest pace in 13 months), the Eurozone (four-year record), Japan, Mexico, Taiwan, Vietnam and Eastern Europe. Cuts were registered in China, the UK, France, Canada, South Korea, Russia, Brazil, Turkey, Malaysia, Austria, and Greece. Price pressures remained muted during August. Average costs rose only marginally and at the weakest pace in four months. Meanwhile, average output charges fell for the second successive month. Selling prices declined in emerging markets, but increased in developed nations.
The pic above is of Boeing's Everett factory in the state of Washington.