Global Factory Activity: China Sees Six-Year High, Mexico Hits Three-Year Low

Manufacturing in key sourcing countries for the apparel and textiles sector was up and down in December, according to the IHS Markit Purchasing Managers’ Index (PMI), an economic indicator for business conditions in a country.

While some markets, like China, saw conditions in very positive territory, Mexico’s struggling economy weighed on its manufacturing sector.

Here’s a look at December PMI’s for countries key to apparel sourcing.

China

Production in China expanded at the fastest rate in nearly six years, thanks to an increase in new orders, according to the latest Caixin Purchasing Managers’ Index (PMI).

The PMI reached 51.9 (over the 50 mark separating expansion from contraction) in December, up from 50.9 in November. According to IHS Markit, improved domestic demand was the key driver of new business growth.

“The sub-indices for output and new orders both hit multi-year highs while those for input costs and output charges continued to rise rapidly, underlining sustained inflationary pressure,” Dr. Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said. “It is still to be seen if the stabilization of the economy is consolidated due to uncertainties in whether restocking and consumer price rises can be sustainable.”

Vietnam

Vietnam stayed on the expansionary side of factory activity in December, too. New orders, output and employment were all up, and the rate of purchasing activity expansion was “substantial,” according to Markit.

The index came in at 52.4 in December, down from 54 in November, marking the 12th time in 13 months that manufacturing output increased, though at a slower pace.

“Solid growth in the final month of 2016 completed a generally positive year for the Vietnamese manufacturing sector,” Andrew Harker from IHS Markit said. “Local firms continue to be able to secure new work, with a joint-record rise in new export business a key highlight from the latest survey. The sector therefor seems in good shape heading into 2017, wherein IHS Markit forecasts a rise in GDP of 6.3%.”

Kenya

New orders are up and rising in Kenya.

Purchasing activity increased at the sharpest rate since Markit started surveying Kenya in 2014, and new orders rose at the fastest pace for 11 months.

The PMI came in at 54.1 in December, up from 53.3 in November.

“Strong domestic and external demand led to an improvement in business operating conditions during the festive period. Notably, job growth rose to a ten month high as firms scrambled to increase headcount in order to mitigate backlogs that have been building up over the past couple of months,” Jibran Qureishi, regional economist at Stanbic Bank said. “However, input costs have been on upward trend which indicates to us that headline inflation looks set to rise from January 17 onwards.”

Brazil

Things weren’t so positive for Brazil in December.

Both new orders and production fell at their fastest rates in six months, which led to further reductions in buying levels and employment, according to Markit. The nation’s ongoing economic recession is weighing heavily on the manufacturing sector’s performance, as are weak demand and increasing competition. As such, businesses are starting to scale back on production volumes.

The PMI fell to 45.2 in December, down from 46.2 in November.

“This accelerated decline in new orders seen at the year-end adds to concerns over Brazil’s manufacturing industry, with both domestic and export demand showing sharp weakness,” IHS Markit economist Pollyanna De Lima said. “The outlook heading into 2017 appears gloomy amid various significant headwinds facing the Brazilian economy, including deteriorating labor market conditions, weak consumption, budget cuts, political disturbance and subdues demand in external markets.”

India

India’s manufacturing sector slid into contraction territory in December as output and new orders fell, and the rupee demonetization took a toll on manufacturing.

To manage, companies scaled back purchases and cut employment. Input costs also increased at a faster clip, while output charge inflation slowed.

The PMI fell to 49.6 in December from 52.3 in November.

“Having held its ground in November following the unexpected withdrawal of 500 and 1,000 bank notes from circulation, India’s manufacturing industry slid into contraction at the end of 2016. Shortages of money in the economy steered output and new orders in the wrong direction, thereby interrupting a continuous sequence of growth that had been seen throughout 2016,” De Lima said. “with the window for exchanging notes having closed at the end of December, January data will be key in showing whether the sector will see a quick rebound.”

Mexico

Mexico saw its slowest growth in manufacturing since October 2013. Production volumes were down, new order growth further slowed and input prices saw a steep and accelerated incline—the peso’s depreciation helped push those raw materials prices up.

The PMI was 50.2 in December, down from 51.1 in November, and only barely above contraction territory.

“December’s PMI data indicated another loss of momentum for Mexico’s manufacturing sector, with relatively subdued domestic demand leading to the weakest upturn in new orders for over three years,” IHS Markit senior economist Tim Moore said. “Survey respondents commented on cautious spending patterns among clients and heightened global economic uncertainty.”

Turkey

Employment in Turkey’s manufacturing sector was up slightly, though output, new orders and new export orders all fell in contraction territory.

The PMI was 47.7 in December, down from 48.8 in November.

“The Turkish PMI remained below 50 in December, mainly reflecting the output and new orders components,” IHS Markit senior economist Trevor Balchin said. “More positively, employment grew further during the month. The depreciating lira was again responsible for an intensification of cost pressures, with the input price inflation accelerating further after a relatively moderate trend in the third quarter.”


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