Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
July saw another unprecedented lengthening of manufacturers'
supply chains, linked in many cases to production of key components
being hit by rising COVID-19 waves in many APAC economies. Prices
continued to rise at one of the fastest rates seen for a decade as
a result.
Not only is the shortage of components constraining production
in countries such as the US and across Europe, labour shortages are
also limiting production. However, a marked fall in business
optimism in July hints that companies could become reticent to
expand capacity while the pandemic continues to hit supply
chains.
Prices rise as supply delays run at unprecedented
levels
Global manufacturing remained beset by unprecedented supply
issues in July, which constrained output and drove prices
higher.
Suppliers' delivery times measured by the JPMorgan Global
Manufacturing PMI, compiled by IHS Markit from its proprietary
business surveys, lengthened at a rate unchanged on that seen in
June, which had in turn been the most severe ever recorded since
PMI data were available in 1998.
The supply delays contributed to a slowing of production growth
during the month. Although remaining among the fastest recorded
over the past decade, factory output growth edged down to the
lowest since February.
Importantly, output growth continued to run behind growth of new
orders for a fifth straight month, meaning backlogs of work rose
sharply again. With the exception of last May, the latest rise in
backlogs has not been exceeded since May 2004, underscoring how
factories are struggling to meet demand.
With supply running behind demand, input cost inflation
accelerated again as factories paid more for raw materials and
components, with price increases often exacerbated by higher
shipping rates. Although slightly below May's recent peak, the
latest rise in input prices was the steepest since the global
supply shock caused the Japanese earthquakes of 2010.
Production growth stalling in Asia
The worsening supply situation can in part be traced to the
Delta variant, which has led to increased COVID-19 containment
measures in many countries, notably in the Asia Pacific region.
Production consequently fell sharply in economies such as Vietnam,
Indonesia and Malaysia in July, with the Philippines and Thailand
also seeing stronger rates of decline, whilst growth slowed closer
to stalling in China and remained subdued in Japan and South
Korea.
Although some Asian economies including Taiwan and India saw
growth tick higher after disappointing June readings, the overall
PMI output index for Asia signalled another second successive month
of near-stalled production growth.
With many Asian factories exporting goods to the rest of the
world, this lack of production has once again hit shipments of
vital components to the rest of the world.
Supply delays exacerbated by labour
shortages
Production constraints were not confined to supply chain delays,
however, with many manufacturers also reporting difficulties
finding staff. Although global factory employment rose for a ninth
month in a row, jobs growth once again lagged new orders growth
with companies, notably in the US and UK, who recorded a fall in
production during the month citing a lack of labour as a cause.
Reduced appetite to expand capacity?
The July survey meanwhile also brought signs that manufacturers
could become more reticent to hire staff on a permanent basis on
coming months, despite current capacity shortfalls. Future output
expectations - which act as a good lead indicator of hiring - fell
worldwide in July to the lowest since last October, dented in
particular by concerns over the lingering impact of the pandemic
and supply constraints in particular.
The data therefore hint that manufacturers could see little
incentive to take on more staff and expand production capacity if
the additional workforce cannot be matched by an equivalent
increase in raw material inputs.
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.
