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Worldwide manufacturing output growth remained subdued in
November as ongoing near-record supply shortages were accompanied
by a slowing of demand growth. Existing shortages were exacerbated
by an unprecedented surge in safety stock building as producers
grew concerned over further supply constraints amid rising COVID-19
worries, leading to yet another steep increase in goods prices.
Although the rate of price increase slowed slightly globally and
the rate of supplier lead-time lengthening eased, thanks in part to
rising production in Asia and lower prices in China, the outlook
has darkened with the advent of the Omicron variant.
We review the latest PMI data with 10 key charts.
Global PMI edges lower
The JPMorgan Global Manufacturing PMI, compiled by IHS Markit
from its proprietary business surveys, edged lower from 54.3 in
October to 54.2 in November. The barely-changed headline reading,
signalling a steady above-trend improvement in manufacturing sector
business conditions, masked important signals from the survey's
sub-indices, including the five components of the PMI itself. These
signals are explored in the following ten charts.
Chart 1: Output growth revives in Asia but remains
subdued in the US and Europe
When analysing the survey data, it is important to bear in mind
that the headline PMI is a blend of five survey gauges and to get a
picture of changing production trends we need to look at the
survey's output index data.
Globally, the output index rose to a four-month high in November
but, at 52.6, remained far weaker than the headline PMI and merely
in line with its long-run average. Although output growth
accelerated in both the US and Eurozone in November, the rates of
expansion remained amongst the lowest since the middle of 2020 as
output was constricted by shortages of raw materials. Relatively
modest production growth was also again seen in the UK, likewise
reflecting shortages though - unlike the US and eurozone - also
linked to falling exports.
However, perhaps the most encouraging news came from Asia, as
many economies saw the Delta wave impact fade. Production in Japan
meanwhile accelerated to the fastest since April, and the second
fastest since 2018, on the back of rising demand and fuller export
order books. Production in China also stabilised after two months
of falling output, hinting at some improvement after the
reintroduction of covid measures implemented to counter the Delta
wave.
Similarly, production continued to rebound strongly from Delta
wave related restrictions in the ASEAN region, albeit losing some
momentum compared to October yet remaining the second-strongest in
almost a decade of comparable survey history. Across Asia as a
whole, production growth accelerated to the fastest since May.
Chart 2: Production shortfall reported for ninth
month
Growth of new orders waned to a 15-month low in November which,
combined with the upturn in output growth, helped narrow the recent
shortfall of production relative to demand. Nevertheless, global
production growth continues to lag that of demand, a trend that has
now been witnessed for nine successive months, with especially
marked shortfalls recorded in the US, Eurozone, Taiwan and South
Korea in November.
Chart 3: Backlogs of work rise sharply, though at
reduced rate
The ongoing shortfall of production relative to demand resulted
in a further build-up of uncompleted orders at global
manufacturers, which have now risen for 16 consecutive months with
especially marked rises seen over the past nine months.
Inventories of finished goods meanwhile fell sharply, reflecting
the ongoing need among many manufacturers to meet current demand by
eating into warehouse finished stock.
However, the increased in backlogs of work and the depletion of
warehouse inventories were both less marked than in October.
Chart 4: Supplier delays moderate but remain close to
all-time highs
In many instances, a shortfall of production relative to demand
(and the resulting build-up of backlogs of work) was again blamed
on supply chain delays and shortages of inputs. Supplier delivery
times continued to lengthen globally at a rate greatly exceeding
anything recorded on over two decades of survey history prior to
the pandemic, albeit with the incidence of delays moderating
slightly in November from October's all-time high.
Supply delays were again associated with a number of causes,
ranging from suppliers lacking production capacity to shortages of
shipping containers, trucker shortages and port congestion.
While every economy covered by IHS Markit's surveys saw longer
lead times in November, the incidence of delays recorded by
countries located in North America and Europe continued to run far
higher than in Asia.
Chart 5: Supply shortages prompt record safety stock
building
The ongoing imbalance of supply and demand was exacerbated by a
record degree of safety stock building in November, as
manufacturers increasingly sought to purchase additional inputs in
an attempt to safeguard future production. Worldwide inventories of
purchases inputs consequently also rose at a survey record
rate.
Steep rises in raw material inventories were seen in Europe and
the US as well as Asia, albeit with China only recording a marginal
rise. Record inventory increases were in fact seen in the eurozone
and Asia ex-China.
Chart 6: Record input price inflation
eases
With global supply chain delays continuing to run at one of the
highest levels seen almost a quarter of a century of survey data
history, a sellers' market persisted, driving up manufacturers'
input costs at one of the sharpest rates seen since the oil price
spike of 2008-9.
However, with the incidence of supply chain delays easing
slightly during the month, likely attributable in part to the
resurgent production growth across large swathes of Asia, and
demand growth continuing to cool, the overall rate of input cost
inflation slowed in November from October's recent peak.
Chart 7: Energy and shipping prices add to producers'
woes
While November brought some signs of the imbalance of supply and
demand easing, rising shipping costs and higher energy costs added
to producers' woes in 2021. The proportion of PMI respondents
reporting higher shipping prices rose far above anything ever
previously recorded by the surveys, running at over 15 times the
long-run average. The proportion reporting higher energy prices
meanwhile spiked to the highest since mid-2008, running at just
over four times the long run average.
Chart 8: China bucks price trend
All economies reported higher input costs, led by record
increases in the US and UK and a near-record increase in the
eurozone. Japan saw the steepest rise since 2008 but China saw the
rate of cost inflation slow sharply, broadly linked to the impact
of lower coal prices. However, the rest of Asia reported the
sharpest input cost increase for over a decade.
Chart 9: Steepest factory gate price inflation seen in
Europe and the US
Strong regional divergences were also seen for selling price
inflation. Average prices charged for goods leaving the factory
gate barely rose in China but surged higher in Europe and the US,
with more modest but steep rates seen in Japan and the rest of Asia
as a while.
Chart 10: Future expectations lift higher but remain
subdued by covid worries
Global factory jobs growth meanwhile slipped to the joint-lowest
seen over the past nine months, in part due to poor availability of
labour in some countries (notably the US) but also because
companies' future expectations remain subdued relative to the highs
seen earlier in the year. Although future expectations brightened
slightly in November, optimism had slipped in October to the lowest
for a year. Prospects continued to be darkened by concerns over
supply constraints, rising prices and, more broadly, worries about
the pandemic.
With the survey data for November collected prior to the news of
the Omicron variant, it is likely that future business expectations
will fall further in December.
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.
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