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Global consumer goods output falls at most severe rate in
series history following marked drop in household spending
National lockdowns and travel restrictions contribute to record
contractions in the production of household items, automotives and
food & beverages
Employment across consumer goods industry declines at record
rate
Ongoing global lockdowns and adherence to coronavirus disease
2019 (COVID-19) related social-distancing measures resulted in
significant decreases in global consumer spending during April,
with consumer goods producers recording the most severe contraction
in output since comparable data were first available in October
2009. Despite food stores remaining open and seeing a pick-up in
the volume of purchases, food & beverage producers were hit by
the continued closure of other businesses such as restaurants.
Consumer-facing sectors have been particularly hard-hit by the
pandemic, with only healthcare services registering an increase in
activity of the industries monitored by the IHS Markit Global
Sector PMI™ in April.
Alongside food & beverage producers, household goods and
automotive manufacturers were knocked yet again as consumers reined
in their spending amid times of increasing job insecurity and
uncertainty, with big ticket items in particular being classed as
low priority by buyers.
Although a number of countries have recently lifted restrictions
on manufacturing such that workers can return to work, social
distancing guidelines mean that adaptations to a new way of working
could take a while to implement and weak demand will ultimately be
a determining factor behind any return to 'normality' for
businesses.
Employment suffering as lockdowns are
extended
Despite the consumer goods sector not being as heavily impacted
by the outbreak when compared to certain services sectors, signals
from April PMI data across numerous regions indicate some of the
sharpest slumps in employment seen since data collection began.
According to April data, the most severe job cutting was seen in
Europe, where lockdowns have often been especially strict, and the
escalation of the virus outbreak has been swift. Unemployment may
worsen sharply over the coming months as furlough or employment
protection schemes come to an end and businesses struggle against
sluggish demand. Such contractions in employment will lead to
further significant drops in household spending as disposable
income is squeezed further.
When split into finer consumer goods sectors, global PMI data
signalled that automotive producers registered the most significant
reduction in workforce numbers during April, with manufacturers of
household & personal use goods close behind. As was seen in
trends for output, food & beverage firms were supported by the
continued importance and necessity of functioning global food
supply chains, and therefore recorded a slower fall in staffing
numbers (albeit still the steepest on record for the sector).
New working conditions to challenge traditional supply
chains
The evolution of the COVID-19 pandemic from the initial outbreak
in China to the swift escalation and detrimental impact on the rest
of the world, resulted in a two-stage issue for much of the global
supply chain.
First, firms outside of China were hit with mass shortages and
longer delivery times as the production of many components from
China was put on hold, forcing companies to diversify their
supplier network.
Second, and what may turn out to be more crucial, is the problem
of demand. Although there may be some pent-up demand following the
immediate lifting of restrictions, this is likely to dissipate
quickly amid rising unemployment and a reluctance among society to
return to previous 'norms' until a treatment or vaccine is
found.
As a result, it is likely that vast technological overhauls of
traditional manufacturing methods will need to be implemented to
ensure worker safety, but also to regain production capacity when
demand returns. This is particularly poignant for automotive
manufacturers, who were already questioning and assessing the
success and sustainability of their supply chains before the
COVID-19 crisis emerged.
Such adaptations and technology advancements - which will now be
pushed through at a far quicker pace - may lead to an
unrecognisable supply chain structure compared to before the virus
outbreak in a number of sectors. In the meantime, however, social
distancing is likely to lead to productivity losses.
Manufacturer worries escalate amid
uncertainty
The further lengthening of stay-at-home orders and lockdowns
will act as a further drag on consumer spending, with concerns
among businesses mounting with each day. Chief among these worries
is the longevity of any recovery following the lifting of
restrictions on society and firms. April data signalled a growing
degree of pessimism towards the outlook for output over the coming
year among consumer goods producers, with household & personal
use products and automotive manufacturers expecting weakened output
as consumer sentiment crashes and export demand sinks across the
worst impacted regions, including Europe and the US.
Consumer goods PMI data give a leading signal against official
household spending data. The substantial drops in output seen in
March and April are expected to translate into severe decreases in
household spending through the first and second quarters of
2020.
Although times have been challenging for food & beverage
producers following the closure of hotels, restaurants and food
outlets, governments are striving to ensure food supplies remain
stable to support the population and prevent panic buying. Beverage
manufacturers have been less fortunate, however, likely due to bars
having been hit by lockdowns and shortages. That said, food &
beverage manufacturers overall remain confident of an uptick in
output over the coming year as any further reopening of the economy
will serve to boost production from current levels.
Forthcoming economic data releases:
May 21st: IHS Markit Eurozone Composite, Manufacturing and
Services Flash PMI (May data)
June 1st: IHS Markit Eurozone Manufacturing PMI (May data)
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.
