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Global manufacturing PMI at highest since November 2018 as
production upturn gathers momentum
Upturn led by Brazil, UK and Germany
China records best year-to-date performance
Global trade shows signs of stabilising for first time in two
years, job losses ease
Global manufacturing output rose at the fastest rate for over
two years in August as the world's factories continued to recover
from COVID-19 related lockdowns. The rebound was led by Brazil, the
UK, Germany, Italy and China. However, especially weak performances
continued to be seen in many parts of Asia, linked in part to the
slow recovery of global trade, albeit with worldwide exports now
showing signs of stabilising.
Job losses meanwhile eased as firms increasingly sought to boost
capacity to meet expectations of rising demand, though the ongoing
cull to jobs hints at cautiousness with regard to spending and
hiring.
Output index at highest since 2018
The JPMorgan Global Manufacturing PMI, compiled by IHS Markit
from its proprietary business surveys, rose from 50.6 in July to
51.8, its highest since November 2018, buoyed by production growth
accelerating to the fastest since April 2018.
Since 2007, when IHS Markit's US PMI data were first included in
the index, the global PMI's output gauge has exhibited an 84%
correlation with the annual rate of change of official production
data, underscoring how the PMI provides a very accurate guide to
changing output trends. Importantly, the PMI is available several
months ahead of the comparable official data.
An OLS regression can be used to determine what a PMI reading
implies in terms of annual growth1. The implied annual growth rate
can be estimated as follows:
Global manufacturing output annual % change =
PMI output index x 0.0101 - 0.506
At July's level, the survey's output index is consistent with an
annual rate of growth of 3.6%, which contrasts markedly with the
peak 17.7% rate of decline indicated back in April. To clarify, the
index is not indicating that output is 3.6% higher than a year ago,
but merely that production is now growing at a rate comparable to
3.6% per annum, representing a further gaining of momentum in the
sector's recovery of the output lost during the pandemic.
Further encouragement came from a rise in the number of
countries reporting output growth in August. Of the 31 markets
covered by IHS Markit's manufacturing PMI surveys, some 25 reported
higher output in August. At 81%, this was the highest proportion
since September 2018 and up from 65% in July and just 3% (i.e. just
China) in April and May.
Brazil reported the fastest rate of expansion for a second month
running, followed by the UK and then Germany, Italy and China. More
modest, but nonetheless accelerating, growth was recorded in the US
and Canada.
The steepest decline was meanwhile recorded in Mexico. Besides
Mexico and Greece, all other contracting manufacturing economies
were located in Asia, including Japan.
Asia excluding Japan and China also notably continued to
markedly underperform relative to Europe and North America, despite
the region returning to growth for the first time since
February.
Less encouraging was a dip in the number of countries with
rising output indices. Indices fell - indicating either slower
rates of expansion or increased rates of decline - in 11 of the 31
markets. Back in April and May, all but two markets had reported
rising output indices. Both Vietnam and the Philippines reported
increased rates of contraction while growth slowed especially
sharply in Ireland, Spain and France.
China leads year-to-date output rankings
Looking at manufacturing production in the year to date, China
has seen the smallest impact from COVID-19, with the PMI output
index registering 50, indicating unchanged production on average in
the first eight months of the year. All other economies have seen
falling output on average.
Relatively shallow (below global average) downturns over the
course of the first eight months of the year have meanwhile also
been reported in Brazil, Australia, Turkey, the UK, the
Netherlands, Ireland, Myanmar and the US.
While the outperformance of China has helped Asia as a whole see
a smaller downturn than Europe or North America in the year to
date, if China is excluded the region has underperformed quite
markedly so far this year.
The worst performance in the year to date has been recorded in
Indonesia, followed by the Philippines and then Mexico and
Japan.
Global trade shows signs of stabilising
Part of the reason for some countries' below-par performances
can be blamed on their greater exposure to international trade and
associated reliance on export demand. Although global new orders
rose for a second month running in August, increasing at the
fastest rate since June 2018, global exports continued to lag
behind overall demand, albeit stabilising. Global exports have not
risen since September 2018.
Weak trade was again linked to demand and supply having been
disrupted by the pandemic. However, the subdued pattern of trade
also reflected the lingering impact of trade wars.
The steadying of global exports nonetheless comes as a welcome
development. The latest aggregated national data on exports from
the CPB showed global levels down some 17% in May compared to the
end of last year.
The strongest export growth was commonly seen in eurozone
members states, led by Germany and the Netherlands, possibly
reflecting the relative ease of trading between members of the bloc
(intra eurozone trade is included in exports). The steepest
declines were seen in Thailand, Indonesia and Vietnam.
Job losses ease as optimism improves
The improved order book situation led to an easing in global job
losses. Factory employment fell globally for a ninth successive
months, but the rate of decline moderated to the lowest since
January. Order book backlogs meanwhile rose fractionally, up for
the first time since February, hinting at likely further
improvement in the job market in September.
The August survey also saw manufacturers become more upbeat
about future prospects, with expectations of output over the coming
year rising to the highest since February.
Using the PMI
Note that we continue to focus our analysis on the PMI survey
output indices rather than the headline 'PMI'. The headline PMI
figure is a composite gauge derived from five survey variables:
output, new orders, employment, inventories and suppliers' delivery
times. These five components usually move in a synchronised
pattern. However, due to supply chain delays arising from the
COVID-19 pandemic, the suppliers' delivery times index has moved
counter-cyclically, dampening the signal from the PMI.
1The regression yields an adjusted r-square of 0.70
with a standard error of 0.028. The r-square rises to 0.76 if
lagged values of the PMI are also used to reflect the PMI's lead
over official data.
Chris Williamson, Chief Business Economist, IHS
Markit
Tel: +44 207 260 2329
chris.williamson@ihsmarkit.com
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.