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Global manufacturing PMI rises above 50 for first time since
January, driven by increased production
Output growth highest since December 2018 with expansions
reported in 20 out of 31 countries
July upturn led by Brazil, Ireland and UK, Asia lags
China has seen smallest output fall in year to date
A key gauge of global manufacturing output hit a one-and-a-half
year high in July as the world's factories continued to bounce back
from coronavirus disease 2019 (COVID-19) related lockdowns. The
rebound was led by Brazil and Europe. However, the overall rate of
growth was subdued, with especially weak performances continuing to
be seen in many parts of Asia in particular. China was a notable
exception, and has in fact seen by far the smallest downturn so far
this year of all economies covered by the IHS Markit PMI
surveys.
Output index at highest since 2018
The JPMorgan Global Manufacturing PMI survey, compiled by IHS
Markit from its proprietary business surveys, rose from 47.9 in
June to 50.3 in July, moving above the no change level of 50 for
the first time since January. A particularly encouraging gain was
recorded for output, which rose at the fastest pace since December
2018 as increasing numbers of companies stepped up production after
COVID-19 related closures.
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 growth [*]. The implied annual growth
rate can be estimated as follows:
At July's level, the survey's output index signalled an annual
rate of growth of 1.5%, which sits in marked contrast to the peak
17.7% rate of decline indicated back in April. To clarify, the
index is not indicating that output is 1.5% higher than a year ago,
but merely that production is now growing a rate comparable to 1.5%
per annum. While representing an improvement compared to the recent
severe decline suffered during the lockdowns, this clearly remains
only a modest rate of expansion and signals only a small step in
the recovery of output lost during the pandemic.
Brazil leads upturn, Asia ex-China lags
Rising factory production was reported in July across 20 of the
31 countries for which IHS Markit collects manufacturing PMI data,
the highest proportion since December 2018 and up from just one
(China) in both April and May.
Brazil recorded the strongest output gain (where the output
index hit a survey record high), followed by Ireland (a 20-year
high) and the UK (which reported a 32-month high), then Austria,
France and Spain.
With Italy and Germany also reporting robust expansions, the
eurozone as a whole saw output rise at the sharpest pace since
April 2018 and, taken as a whole, was only outperformed by Brazil,
the UK, Poland, Turkey and Colombia.
Looking at the other major developed economies, robust gains
were seen in Australia and Canada but the US only reported a modest
expansion of output while Japan remained in contraction, the latter
seeing a rate of decline exceeded only by that reported in
Mexico.
In Asia, the strongest expansion was recorded in China, with
only Malaysia and Myanmar also reporting growth. Asia as a whole
consequently reported only a marginal rise in output, albeit the
first gain since January. However, if China is excluded, Asia saw a
further marked drop in output, with Asia ex-Japan and China also
remaining firmly in contraction territory.
China leads year-to-date output rankings
Looking at manufacturing production in the year to date, China
has seen the smallest output decline according to the average PMI
output index reading, leading all other economies by some
considerable margin. Relatively shallow (below global average)
downturns over the course of the first seven months of the year
have meanwhile also been reported in Brazil, Australia, Thailand,
the Netherlands and the US, albeit in all cases rates of decline
remained substantial by historical standards.
The worst performance in the year to date has been recorded in
Indonesia, followed by the Philippines and then Japan, highlighting
the extent to which Asia ex-China has been especially hard-hit as
the pandemic disrupted global trade and supply chains, exacerbating
the impact of trade wars and already-weak consumption in economies
such as Japan.
Trade acts as further drag on global
recovery
Encouragingly, new orders also returned to growth in July for
the first time since January, though the expansion remained muted
relative to output, hinting at still-subdued levels of demand.
International trade continued to act as a major drag, with export
orders falling globally once again, albeit at the slowest rate for
six months. Weak trade was linked to demand and supply chains
having been disrupted by the pandemic, but also reflected the
lingering impact of trade wars. Global exports have now fallen
continually since September 2018.
Using the PMI
Note that we continue to focus our analysis on the PMI survey
output indices rather than the headline 'PMI'. The latter 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.
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.
