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Output, order books, export and payrolls all contract
Prices rise at slower rate amid weak demand
Eurozone, UK, China and Japan in decline, with US close to
stagnant
Worldwide PMI surveys indicated a deterioration of manufacturing
business conditions for a second successive month in June, with the
health of the sector declining at the fastest rate since October
2012.
Output, new orders, exports, inventories, backlogs of work and
employment all fell during the month. Factory gate price inflation
meanwhile slipped to the lowest for nearly three years, in part
reflecting a further easing of raw material cost pressures.
Only 12 of the 30 countries covered by the IHS Markit surveys
reported improved business conditions, the lowest number for over
six years. Deteriorating business conditions were seen in the
Eurozone, UK, China, Japan and the rest of Asia. The US meanwhile
remained close to stagnant, the past two months registering the
worst performance seen over the past decade.
Manufacturing declines for second month
The headline JPMorgan Global Manufacturing PMI,
compiled by IHS Markit, fell from 49.8 in May to
49.4 in June, its lowest since October 2012. The index
signalled a second-successive monthly deterioration in business
conditions, contrasting markedly with robust growth seen this time
last year.
The survey's output index hit its lowest since October 2012, and
is now indicating falling global production for the first time
since 2012. Output was curbed as inflows of new orders fell for a
second successive month, declining at the fastest pace since
September 2012.
Weakening international trade again contributed to the drop in
new orders. New exports orders fell for a tenth successive month,
with the rate of decline accelerating to indicate the steepest drop
in worldwide trade flows since September 2016.
Weaker than expected sales limited firms' efforts to run down
their inventory holdings. The resulting new orders to inventory
ratio (a key gauge of near-term production growth) consequently
fell to its lowest since September 2012, indicating that risks are
skewed toward the downturn gaining momentum in July.
Job cuts continue as firms worry about spare
capacity
The drop in new orders meant firms increasingly ate into
previously-placed orders to support production. Backlogs of work
consequently fell at the fastest rate since December 2012, down for
a sixth straight month.
Falling backlogs of work indicate the development of spare
capacity in the manufacturing sector, which in turn promoted
manufacturers to cut headcounts for a second consecutive month.
Although only slight, the decline represented the first
back-to-back cut to headcounts seen for three years.
The development of spare capacity was also indicated by the
first (albeit marginal) shortening of average supplier lead-times
for six years. The improvement contrasts markedly with this time
last year, when supply delays hit a six-year high as suppliers
struggled to meet demand.
Prices rise at slower rate
The weakening demand environment meant average input costs rose
at the slowest since April 2016 as more suppliers offered discounts
to boost sales. Average selling prices at the factory gate
meanwhile showed the smallest rise for 33 months as producers also
fought more intensely on price, with margin pressures alleviated by
the slower growth of material costs.
Downturn spreads
Of the major economies, the eurozone saw the steepest downturn,
with the PMI below 50 for a fifth straight month and registering
the second-steepest decline in business conditions for just over
six years. Within the eurozone, the sharpest deterioration was
again seen in Germany, which remained at the bottom of the global
PMI rankings.
UK manufacturers likewise reported a marked downturn, with the
PMI in contraction territory for a second month in a row and
indicating the steepest downturn since early-2013. A boost from
Brexit-related stock building seen earlier in the year moved into
reverse, exacerbating underlying weak demand.
Both China and Japan meanwhile recorded modest deteriorations in
manufacturing conditions, linked in both cases to falling exports.
A slightly more marked decline was recorded in the rest of Asia,
albeit with marked variations by country. Particularly strong
expansions were seen in Myanmar and Vietnam, which topped the
global PMI rankings in June, as well as India and the Philippines.
In contrast, Taiwan, South Korea and - to a lesser extent -
Malaysia all reported steeply deteriorating manufacturing
conditions during the month.
In all, only 12 of the 30 countries covered by IHS Markit's PMI
surveys reported an improvement in manufacturing conditions in May,
down from 17 in May and 21 in April, and was the lowest number
since November 2012.
The largest country continuing to remain in expansion territory
was the US, though even here the rate of improvement has slowed
sharply to near-stagnation in the past two months, indicating the
worst performance since the height of the global financial crisis
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.
