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The JPMorgan Manufacturing Purchasing Managers' Index™ (PMI™),
compiled by S&P Global, fell from 53.7 in February to a
one-and-a-half year low of 53.0 in March. Production and demand
growth was subdued by a combination of headwinds, including the
Ukraine war and new COVID-19 related disruptions - notably in
China. These headwinds led to an intensification of supply chain
delays and re-acceleration of price pressures, as well as a renewed
fall in global trade flows. Business confidence also fell sharply,
down to the lowest since September 2020, signalling downside risks
to output growth in the second quarter.
However, trends varied markedly around the world. Improved
manufacturing performances in the US and Canada, linked in part to
signs of the supply squeeze easing, contrasted with a deteriorating
picture in Europe due to the war and in Asia due to the Omicron
wave.
Output growth slowest since July 2020
Global manufacturing production growth slowed in March to the
weakest seen so far in the recovery from the first pandemic
lockdowns in 2020. The slowdown was led by the steepest collapse in
Russian production since May 2020. Excluding the pandemic
disruptions, the decline was the most severe recorded in Russia
since the global financial crisis in 2008-9. However, output also
fell in mainland China, dropping at the sharpest pace since
February 2020, amid new COVID-19 lockdowns.
Output also notably fell back into decline in South Korea and
Vietnam due to the Omicron wave, with deepening contractions seen
in Malaysia and Myanmar and slower expansions recorded in Taiwan
and India, all of which contributed to the weakest production gain
across Asia ex-China and Japan since last September, when
production was hit by the Delta wave.
There was better news in North America, where output rose in the
US at the sharpest rate since last August and production in Canada
grew at a pace not beaten for a year. Mexico bucked the trend,
however, with an increased rate of contraction.
In Europe, the Ukraine war took a toll on production growth,
most prominently leading to renewed falls in output in Poland and
the Czech Republic, as well as deepening the downturn in Turkey.
However, eurozone and UK growth also slowed, with the former seeing
the slowest upturn in output for 21 months, dampened by the impact
of the war and, in the case of the UK, ongoing Brexit-related
factors. In contrast, Ireland, benefitting from Brexit, led the
global upturn in March.
Global trade back in decline
March also saw global export orders fall back into decline after
a brief recovery in February, with the rate of deterioration the
fastest since July 2020 due primarily to the combined impact of the
Ukraine war and disruptions caused by the Omicron wave.
Only nine of the 28 economies covered by the PMI reported higher
exports, led by Austria, the US, the Netherlands and Ireland. By
far the steepest reduction was seen in Russia, though an
accelerating decline was recorded in China and renewed falls were
seen in Japan, the rest of Asia as a whole, the eurozone and
Brazil, as well as in the eastern European countries covered by the
PMI
Supply delays worsen
An additional impact from the Omicron wave in Asia and the war
in Europe was a worsening of global supply chains. Average supplier
delivery times reported by manufacturers lengthened to an increased
extent in March, albeit with the incidence of delays remaining
below the all-time highs seen in 2021.
There was a marked variation in supplier delays by region,
however. The worsening of the supply situation was focused on
Europe - and the eurozone in particular - due to the war. However,
lead-times also lengthened to slightly greater degrees in Japan and
China, albeit remaining far less widely reported than in the US and
Europe. In contrast, an encouraging easing in the degree of supply
chain tightening was recorded in the US and the UK, which saw the
incidence of delays fall to 14- and 17-month lows respectively,
thanks in part to the easing of shipping and other logistical
issues.
Stocks of goods for customers depleted further, but
inventories of inputs rise sharply
The ongoing widespread nature of the supply chain crisis
continued to affect inventories. First, curbed production
capabilities resulting from shortages of certain key raw materials,
notably semiconductors, as well as labour shortages, resulted in
yet another steep drop in manufacturers' inventories of finished
goods.
Second, manufacturers sought to boost inventories of other raw
materials and components where supply permitted, often citing a
desire to build additional safety stocks as a precaution against
future potential supply disruptions. The incidence of input buying
for safety stocks rose to the highest in the survey history.
Although inventories of purchased inputs rose at a slower rate than
the peaks seen in 2021, the rate of stock building remained among
the quickest seen over the survey's quarter of a century
history.
Inflation rates accelerate, led by surge in eurozone
prices
The worsening supply situation and surge in energy prices
associated with the Ukraine invasion meanwhile led to a further
intensification of inflationary pressures. Average material input
price inflation rose to the highest since last November while
average selling price inflation hit the highest since last
October's record, the latter buoyed not only by the rising raw
material price increases but also buoyed by rising wage
pressures.
Rates of inflation for goods leaving the factory gate were again
highest where the supply crisis has been most keenly felt, namely
the US and Europe. However, whereas the slight easing of supply
pressures took some heat out of the rate of inflation in the US,
the worsening supply crisis in Europe pushed prices up at an
unprecedented rate in March.
Price pressures remained more muted in Asia, though both China
and Japan saw increased rates of inflation, the latter close to
January's multi-year high.
Forward-looking indicators deteriorate
The forward-looking indicators from the survey suggest that
output growth could weaken further as we move into the second
quarter.
First, the drop in exports recorded during the month added to a
broader weakening of demand, which in turn resulted in the rate of
growth of new orders slowing globally to the lowest since July
2020, rising at only a very modest pace. Although growth of new
orders accelerated in the US and Canada, the UK reported only a
modest increase and growth slowed to a 21-month low in the
eurozone. Steep falls were recorded in Russia and China, and
renewed reductions in eastern Europe, with a marked slowing linked
to the Omicron COVID-19 wave also seen in the ASEAN region.
Second, the headwinds of soaring costs - especially for energy -
tighter supply lines, cooling demand conditions, the Omicron wave,
Russian sanctions and the broader geopolitical uncertainties caused
by the Ukraine war led to a marked downshifting of companies'
expectations for the coming year. Optimism regarding future output
slumped globally to its lowest since September 2020, dropping to an
extent not seen prior to the pandemic since comparable data were
available a decade ago.
Chris Williamson, Chief Business Economist, S&P
Global Market Intelligence
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.
At the same time, business costs increased at historically elevated rates, with new record levels of cost inflation… https://t.co/ofDaBfq7KX
May 25
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