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An unchanged global manufacturing PMI reading in December masked
improvements in various sub-indices: factory production growth
accelerated, supply disruptions eased, safety stock building was
less evident and price pressures abated. Though the impact of the
Omicron variant remains highly uncertain, business future
expectations also remained largely unchanged, as any concerns over
disruptions caused by rising case numbers were largely offset by
the improving supply situation and growing hopes that any
disruptions would be modest compared to prior waves.
We review the latest PMI sub-index data with 10 key charts.
Global PMI holds steady
The JPMorgan Global Manufacturing PMI, compiled by IHS Markit
from its proprietary business surveys, held steady at 54.2 for a
third successive month in December. While signalling an encouraging
resilience in the overall health of the manufacturing economy in
the face of the COVID-19 Omicron variant, the survey's sub-indices,
including some of the key components of the PMI itself, brought
even better news. These signals are explored more fully in the
following ten charts.
Global manufacturing PMI and its five
components
Chart 1: Production growth recovers in line with new
orders
December saw growth of factory output accelerate to the fastest
since July, broadly matching the expansion of new orders for the
first time since February. Whereas in recent prior months
production growth had lagged demand growth to an unprecedented
degree barring a brief spell in 2009 as factories simply could not
produce everything being demanded by their customers, December has
seen production and demand growth come back into line.
Global output and new orders growth
comparisons
Chart 2: Italy and the US report biggest shortfalls of
production, China reports surfeit
The biggest shortfall of production relative to demand was
recorded in Italy followed by the US, Australia and South Korea.
France, Vietnam, Taiwan, the UK Canada, the Philippines and Germany
all also reported production deficits relative to orders. However,
the US production deficit was the smallest since February while the
eurozone deficit as a whole was the smallest for three months.
In contrast, a surplus of production relative to new orders was
seen in Thailand, Indonesia, China, as well as Spain, Japan, Russia
and several other central and eastern European economies. Across
Asia as a whole, the production surplus was the largest since
August 2020.
Production and order book comparisons
Chart 3: Production constraints ease
The faster output growth (and reduced production shortfall) in
December was largely attributable to companies reporting fewer
production constraints due to staff or raw material shortages.
While the number of companies worldwide reporting that output was
constrained by shortages continued to run at 3.5 times the long-run
average in December, this is down from a record peak of 4.7 times
the long-run average back in October. To underscore the
unprecedented extent to which production growth has been curbed by
shortages of staff and materials during the pandemic, prior to 2020
this ratio had never risen above 2.0.
Global output constraints
Chart 4: Supplier delivery delays ease to lowest since
March
Key to the easing of the production constraints was an
alleviation of supplier delivery delays in December. Although still
running at a level far in excess of anything seen prior to the
pandemic, the average lengthening of supplier delivery times
globally eased for a second consecutive month in December to the
smallest recorded since March.
In many instances, suppliers had been able to raise capacity to
meet demand for inputs from manufacturers, though problems
persisted in shipping these goods to factories, with the number of
companies reporting shipping delays continuing to run at around
eight times the long-run average, pointing to a continued worrying
- and unprecedented - logistical issue which remains unresolved.
However, even these shipping delays showed some signs of moderating
in December.
Global supply and shipping delays
Chart 5: Supplier delays moderate but remain close to
all-time highs
Suppliers' delivery times continued to lengthen most notably in
the US and Europe, though to significantly lesser extents than in
prior months. Delivery lead times lengthened to the least extent
for seven months in the US, ten months in the eurozone and 12
months in the UK. The latter nevertheless saw the longest lead-time
extension of any country other than the Netherlands, in part
reflecting additional issues relating to Brexit.
Far fewer delays were recorded in Asia, with China, in
particular, seeing especially modest disruptions to supply
chains.
PMI supplier delivery times index
Chart 6: Supply shortages prompt record safety stock
building
The ongoing stress on supply chains and shipping times was
exacerbated by stock building in December, especially as
manufacturers continued to purchase additional inputs in an attempt
to safeguard future production. Worldwide inventories of purchased
inputs consequently at a new survey record rate for a second
successive month, led by a record increase in the eurozone.
However, some encouragement from signs of improving supply chains
meant that the incidence of safety stock building cooled from
November's all-time high, albeit remaining the third highest on
record, resulting in lower inventory accumulation rates in the US
and Japan.
Global inventory building
Chart 7: Record input price inflation eases for second
month running
An easing in the rate of increase of manufacturers' input costs
accompanied the cooling of supply chain pressures. Measured
globally, input costs rose at the slowest pace since April, hinting
that the rate of increased peaked back in October. It should
nevertheless be noted that, although moderating, the rate of input
cost inflation remains higher than at any time seen in the ten
years prior to the surge seen in the pandemic.
Global manufacturing supply delays and input
prices
Chart 8: China reports lowest rate of input cost
inflation
Input cost inflation rates differed markedly around the world.
Most notably, China saw prices barely rise - recording the lowest
inflation rate since prices began rising in June 2020 (and the
lowest of all economies surveyed in December) as government
measures to bring commodity prices down took effect, notably for
coal.
Input cost inflation rates also cooled in most other major
economies during December, albeit with still elevated rates of
increase recorded in the UK, eurozone and US, the principal
exceptions being Turkey, Mexico, Malaysia and Australia.
Manufacturing input prices
Chart 9: UK bucks trend of lower factory gate price
inflation, prices fall in China
Strong regional divergences were also seen for selling price
inflation, largely linked to the input cost differentials recorded
during the month. Average prices charged for goods leaving the
factory gate fell slightly in China for the first time since April
2020 (making it the only economy reporting lower prices in
December) and rose at slower - though still elevated - rates in the
US and Eurozone (the lowest for eight and six months respectively).
Modest easings were also seen in Japan and the rest of Asia.
In contrast, producer selling prices rose at an increased rate
in the UK (a rate of increase exceeded only by that seen in Tukey
and the Netherlands), taking the rate of inflation to the highest
on record.
Manufacturing output prices
Chart 10: Future expectations show encouraging
resilience in face of Omicron
In a month in which the Omicron variant led to a surge in global
COVID-19 infections, the global PMI future output expectations
index - which tracks firms' own projections of their output in the
coming year - showed encouraging resilience. The index dropped from
64.3 in November to 63.7 in December, running below the prior
12-month average of 65.1 but remaining above the long-run average
of 62.4 to suggest that firms see few additional disruptions from
the Omicron spread.
Future expectations in fact even picked up in the US to the
second-highest in nearly six years, linked to the improving supply
situation, and lifted slightly higher both in the eurozone and Asia
excluding Japan and China. The latter saw a notably marked downturn
in expectations for the year ahead. Note that if China was
excluded, global business confidence rose in December to the
highest since July, with firms often citing fewer concerns over the
impact of COVID-19 despite the Omicron variant.
Global manufacturing PMI future
expectations
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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