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Global PMI dips to 49.8, lowest since October 2012
Order books contract, led by export downturn
Spare capacity takes pressure off prices, but also hits
jobs
Japan and UK join Eurozone in decline, with sharp slowing in US
growth also recorded
Worldwide PMI surveys indicated that manufacturing moved into
decline in May, with business conditions deteriorating to the
greatest extent since late-2012 amid an ongoing trade-led slowdown.
Economies reporting manufacturing declines now include the
Eurozone, UK and Japan although, of the very largest countries, the
biggest change was seen in the US, where the PMI fell to its lowest
since 2009.
Manufacturing deteriorates
The headline JPMorgan Global Manufacturing PMI, compiled by IHS
Markit, fell from 50.4 in April to 49.8 in May, its lowest since
October 2012. It was the first time that the PMI has fallen below
the 50.0 no change level, indicating an overall deterioration of
business conditions (albeit only marginal) since February 2016.
The deterioration contrasts markedly with robust growth
indicated this time last year, the PMI having lost ground almost
continually since peaking in December 2017.
The survey's output and new orders indices both sank to their
lowest since October 2012. Falling export orders again fueled the
downturn, dropping for a ninth straight month to signal a further
deterioration in global trade flows.
The survey data show trade growth having deteriorated from a
peak in January 2018, corresponding with rising concerns over trade
wars. Anecdotal evidence from the surveys indicated that such
concerns intensified again in May. Analysis of comments collected
from survey participants revealed an increase in the number of
times trade concerns were mentioned to an all-time survey high,
pushing future growth expectations to the lowest recorded since
outlook data were first collected in mid-2012.
Job cuts and price pressures ease amid signs of spare
capacity
The drop in new orders meanwhile meant firms increasingly ate
into previously-placed orders to support production. Backlogs of
work consequently fell at the joint-fastest rate since December
2012, down for a fifth consecutive month.
Falling backlogs of work hint at the development of spare
capacity in the manufacturing sector, a trend which was further
indicated by fewer incidences of supply chain delays. This time
last year, supply delays hit a seven-year high as suppliers
struggled to meet demand. In contrast, in May the number of
reported delays was the lowest for three years.
The existence of spare capacity tends to have two
consequences.
First, firms typically seek to scale back operations to remove
slack, often resulting in job cuts. It was therefore not altogether
surprising to see jobs being culled globally in May, albeit only
marginally, for the first time in almost three years.
Second, prices tend to come under downward pressure amid spare
capacity as firms seek to stimulate weaker than anticipated sales.
Such a trend was seen in May, with input costs rising at the
slowest pace for nearly three years as more suppliers offered
discounts. Average selling prices at the factory gate meanwhile
showed the smallest rise since September 2016.
Germany leads the downturn, but the US sees sharp
slowdown
The breadth of the slowdown also widened in May, with the number
of countries that reported a deterioration or stagnation of
manufacturing conditions, defined as a PMI reading at or below 50,
rising to 13, up markedly from four this time last year. Germany
again reported the steepest downturn, in part reflecting the
dominance of auto and machinery makers, both of which are sectors
suffering especially weak demand (see our
global sector PMI data). The weakness of German production
dragged on the eurozone, where the PMI fell to one of the lowest
levels seen over the past six years, deep in contraction
territory.
Especially steep downturns were also seen in Turkey and the
Czech Republic, with more modest (though still substantial) rates
of decline seen in Austria, South Korea, Taiwan, Malaysia, Poland,
Canada and the UK. Marginal deteriorations were meanwhile seen in
Italy, Japan and Russia.
At the other end of the scale, Myanmar and Greece reported the
joint-strongest expansion, followed by India, the Netherlands and
Vietnam. Of note, six of the top eight performing manufacturing
economies were found in the Asia Pacific region. Producers in some
countries hinted at benefitting from trade diversion resulting from
the US-China trade spat.
In terms of the biggest movers, the most notable changes were
steep drops in PMIs for the US and the UK, down to their lowest
levels since September 2009 and July 2016 respectively. While the
UK's worsened performance reflected pay-back from Brexit-related
stock building earlier in the year (something that was also evident
in Ireland), the US's weakened PMI was mainly a reflection of
falling orders, notably for export, with export orders falling at
the fastest rate for three years.
Of note, although the US PMI came in above the Caixin PMI for
mainland China, the US export orders index dropped below that of
China for the first time since February 2018.
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.
