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Global manufacturing PMI highest since February 2018
Production upturn led by Brazil, Germany and India, but US
growth highest for over six years and China reports strongest gain
for a decade
Future optimism lifts higher amid surge in the US, and fuller
order books mean labour market steadies
Shortages push factory gate price inflation to a two-year
high
Global factory output and new orders rose in November at some of
the fastest rates seen over the past decade as demand continued to
revive from the coronavirus disease 2019 (COVID-19) related
lockdown earlier in the year. While renewed virus restrictions
subdued growth in some markets, notably in Europe, hopes of a
vaccine, reviving global trade and a surge in optimism in the US
following the presidential elections meant business confidence
about the year ahead improved markedly in November.
Combined with signs of capacity constraints being hit, the
upturn in confidence led the first rise - albeit only marginal - in
global factory employment for a year. However, supply chain delays
worsened during the month, contributing to upward price pressures.
Factory gate prices consequently rose at the fastest rate for two
years.
PMI rises as production accelerates
The JPMorgan Global Manufacturing PMI, compiled by IHS Markit
from its proprietary business surveys, rose from 53.0 in October to
53.7 in November, its highest since February 2018. The PMI has now
risen continually since hitting a low in April, at the height of
global pandemic lockdowns, led by improving trends in output and
new orders. Both of these key metrics rose in November at the
fastest rates since January 2018, that were also among the
strongest recorded over the past decade.
Since February 2011, only December 2017 and January 2018 saw
marginally faster global output growth than that recorded by the
latest survey.
The improvements signalled by the PMI in recent months suggest
that manufacturing has continued to recover the output lost during
lockdowns earlier in the year. The PMI's output index has now risen
to a level broadly indicative of global factory output growing at
an annualised rate of 5%*, indicating a robust recovery.
Note that the latest available official data suggest that global
production was running 3.5% below the level of a year ago in
September, which compares well with a peak annual rate of decline
of 17.8% seen in April. Both the PMI and the official data
therefore indicate that the recovery from the pandemic is so far
looking faster than the recovery seen during the global financial
crisis.
*Since 2007, when IHS Markit's PMI data for the United
States were first included, the global PMI's output gauge has
exhibited an 83% correlation with the annual rate of change of
official production data, achieved with the PMI acting with a lead
of three months. Importantly, the PMI is also published several
months ahead of the comparable official data, underscoring how the
PMI provides a very accurate advance guide to changing output
trends.
An OLS regression can be used to determine what a PMI
reading implies in terms of growth, estimated as follows:
Global manufacturing output annual % change = PMI output index x 0.0101 - 0.506
Brazil leads the upturn, Asia lags
Brazil continued to lead the global production upturn for a
second consecutive month, followed by Germany and India. All three
countries reported especially strong growth as order books
continued to rebound strongly, albeit with output rising at slower
rates than seen in September in all three cases.
The US meanwhile moved up into fourth place in the rankings,
reporting a marked acceleration in production growth to the fastest
for just over six years in November.
The improvement in the US pushed its rate of expansion ahead of
that seen in the eurozone, where growth divergences widened across
the single currency area. Germany was the stand-out performer while
France and Spain fell back into contraction, with declines often
linked to demand having been hit by rising COVID-19 infection rates
and renewed 'lockdown' measures by national governments. Although
overall eurozone output growth remained robust, thanks mainly to
Germany, the increase was the smallest seen since July.
The UK continued to report strong growth, albeit down from sixth
to seventh place in the global rankings, though the increase was in
part fuelled by the ordering of goods ahead of the Brexit
transition at the end of the year, notably from customers in the
EU.
Manufacturing output growth in Asia accelerated to the fastest
since January 2011, despite Japan remaining in contraction. While
India was once again the fastest growing Asia Pacific manufacturing
economy, robust - and accelerating growth - was also seen in Taiwan
and China. The latter notably saw output growth accelerate to the
fastest since November 2010. Indonesia and the Philippines
meanwhile moved back into expansion and growth also accelerated in
Australia and South Korea.
Asia as a whole nevertheless continued to lag behind North
America and the Eurozone in terms of factory output growth.
In all, 11 of the 30 countries for which November data are
currently available reported falling output, up from nine in
October, with Greece replacing Mexico at the foot of the rankings
to report the steepest monthly loss of output of all surveyed
countries. In addition to France and Spain, Turkey, Poland and
Vietnam were all also notable in sliding back into
contractions.
Trade revives but remains subdued by virus
outbreak
A key contributor to the relatively swift return of robust
global manufacturing growth in the recent months has been a revival
in worldwide goods trade. Whereas it took eight months for the
global PMI's new export orders index to show a return to growth
after bottoming out at the peak of the global financial crisis,
2020 saw exports return to growth after just five months after the
low point seen in April.
However, although accelerating again in November, global new
export orders growth remained relatively subdued, often linked to
the initial rebound from second quarter lockdowns starting to lose
impetus, especially as rising COVID-19 case numbers dampened demand
in some countries.
Optimism fuelled by vaccine hopes and surge in US
sentiment
More encouragingly, manufacturers' optimism about the year ahead
improved in November to the highest since February 2015. Sentiment
strengthened in the wake of promising news on COVID-19 vaccine
developments during the month, as well as a notable upturn in the
US following the presidential elections. Future optimism in the US
surged to the highest for almost six years. However, sentiment also
picked up in the Eurozone, the UK, Canada, Russia and Brazil,
though lost some ground in China, India and Japan.
Employment stabilises
Higher inflows of new orders meant firms increasingly struggled
to meet demand, hence backlogs of work rose at the steepest rate
since January 2018. Employment also rose as firms sought to boost
capacity to meet the higher workloads. Although only very marginal,
the global increase in factory payroll numbers was the first seen
for a year.
Looking at the major economies, jobs growth was focused on the
US and China, with the latter notable in reporting the strongest
gain for a decade. However, the rate of job losses moderated in
Asia ex-Japan and China and in the UK and Eurozone.
Shortages push factory gate price inflation to a
two-year high
A consequence of the recent recovery of manufacturing has been a
strengthening of industrial prices. The stretching of capacity
signalled by the increase in manufacturers' backlogs of work was
mirrored by a lengthening of supplier lead times, as suppliers
increasingly struggled to provide inputs to manufacturers on a
timely basis due to the recent upturn in demand. With the exception
of the height of the pandemic through February to May, when
widespread temporary factory closures were reported around the
world, the incidence of supply chain delays in November was the
highest since April 2011, when supply chains were hit by the
Fukishima incident.
Supply shortages inevitably led to suppliers increasingly
raising prices in November, causing average input costs to rise
globally at the fastest rate for two years.
These higher costs were often passed on to customers, driving
worldwide factory gate prices higher at a rate not seen since
October 2018.
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.
