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Strong global manufacturing production reported in March, but
growth stymied by supply constraints
Rising backlogs of work hint at further robust expansion in
second quarter
But inflation concerns are fanned by record rise in factory gate
prices
Global manufacturing output growth accelerated in March to one
of the fastest rates seen over the past decade. The further
improvement occurred despite near-record shortages of inputs, the
lack of which was a principal factor behind the largest
accumulation of backlogs of uncompleted orders since 2010.
These rising backlogs point to strong production growth through
to the second quarter, assuming the supply situation improves.
Delays from the Suez Canal blockage could add to these delays,
however, resulting in a further short-term constraint on
production.
More encouragingly, a brightening outlook has encouraged firms
to boost capacity by adding to payroll numbers at the fastest rate
for over two years.
The consequence of higher demand and constrained supply has been
rising prices. March saw the largest increase in prices charged for
manufactured goods recorded since data were first available over
ten years ago.
Production growth strengthens
The JPMorgan Global Manufacturing PMI, compiled by IHS Markit
from its proprietary business surveys, showed worldwide factory
output growing for a ninth successive month in March. Moreover, the
rate of growth accelerated to a pace just shy of last November's
recent peak, hitting the second-highest since the start of 2018.
The latest monthly expansion has only been exceeded three times
since February 2011.
The upturn was led by a record surge in eurozone manufacturing
production (fueled in turn by a record upswing in Germany),
accompanied by strong growth in the US and a notable rebound from
near-stalled production in the UK. In Asia, Japanese producers
reported the sharpest gain for 27 months, while China's output
growth slowed to the weakest since last April. Nonetheless, further
robust upturns in Taiwan, South Korea, Indonesia and Vietnam all
helped sustain output growth in the rest of Asia at one of the
fastest rates seen over the past decade (data for India are
released 5th April).
The manufacturing upswing in part reflected rising global trade
flows. Global exports rose at a rate not seen since January 2018
(just prior to the dampening impact of US-China trade war
developments).
The eurozone's impressive record expansion was in particular
driven by surging exports, which in the PMI data it should be noted
includes intra-eurozone exports among its members. Eurozone
exporters reported the largest monthly increase in export orders
since the survey data were first available in 1997.
US export growth moderated but remained among the sharpest since
the global financial crisis, and China recorded the first rise in
exports since December last year, though the latter reported only
modest growth due to shipments again being constrained by logistics
issues, notably shortages of containers.
Japan meanwhile recorded the first back-to-back monthly gains in
exports for over two years, and elsewhere in Asia exports rose at
the fastest rate since July 2014.
Weak export sales growth continued to be recorded in the UK,
however, where Brexit issues continued to be widely reported as
having dampened overseas trade.
Near-record supply delays
The rise in production during the month was all the more
impressive given near-record supply chain delays in March. Average
suppliers' delivery times lengthened to an extent only exceeded
once in more than two decades of survey history, with only the
supply shock during the height of the pandemic in April of last
year witnessing more widespread delays.
Supply constraints were attributed to demand exceeding supply
for a wide variety of inputs, with shipping and logistics issues
contributing to longer lead times.
Supply delays were most pronounced in Europe, led by Germany,
the Netherlands and Austria, as well as in the US and Taiwan, as
demand for inputs soared across these economies alongside booming
production demands. Brazil and the UK also saw above-average supply
problems, albeit in the latter's case often linked to Brexit
related non-tariff barriers.
The constraints arising from supply shortages meant overall
global production growth lagged behind that of new orders. Such a
shortfall in production is unusual, especially to the degree seen
in March. With the exception of the supply shock from China's
factory shutdowns last year, a production shortfall relative to new
orders growth of the magnitude seen in March has generally been
followed by stronger production growth, therefore boding well for
output to rise at a steeper rate in the second quarter. This was
particularly evident in the US, where new orders growth accelerated
while output growth has slowed markedly since the start of the
year.
Similarly, such a pent-up demand fueled upturn in the second
quarter was also signalled by the largest increase in backlogs of
work recorded since May 2010. Business expectations also continued
to run at one of the highest levels seen over the past seven years,
albeit down slightly on February, amid hopes of the vaccine
roll-out driving further sales growth in coming months.
In this context it was therefore not surprising to see the
worldwide surveys indicate the fastest growth of manufacturing
payrolls for 28 months.
Record price hikes
A consequence of the recent surge in demand and supply shortages
was a further rise in price pressures during March. Average prices
paid globally for inputs rose at a sharply increased rate,
registering the second-largest monthly gain since September 2017
(behind December 2020).
With firms often seeking to pass these higher costs on to
customers, average selling prices for goods leaving the factory
gate were hiked to an extent not seen since comparable data were
first available in 2009.
Chris Williamson, Chief Business Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
