Global Factory Activity: US Manufacturing Slows Further, UK Hits Three Year High

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From one month to the next, things are shifting in terms of global trade and relations and there’s still little certainty when it comes to what shifts to expect from the manufacturing sector.

In the United States manufacturing conditions have seen their slowest improvement since September, according to the reports put out by IHS Markit. In the U.K., manufacturing activity hit a three-year high, and the European Union as a whole is doing the best it’s done in this department in six years.

Here’s a look at April PMI’s (purchasing manager’s index) for global apparel sourcing countries.

United States

Manufacturing production in the United States may still be up but growth has continued to slow since January’s 22-month high.

The PMI for April was 52.8, a slide from the previous month’s 53.3.

Output volumes rose at a slower place as a result of subdued new business growth. Manufacturers were also trying to reduce their stocks of purchases, ending a six-month period of inventory building.

“The signs of slowing growth are most evident in the domestic consumer sector, but investment goods manufacturers continue to fare well, enjoying stronger capital equipment spending from the energy sector in particular,” IHS Markit chief business economist Chris Williamson said. “Price pressures have meanwhile risen to a two-and-a-half year high, which is likely to feed through to final prices paid for goods consumers in coming months.”

China

Production and new business growth in China were down in April, too.

The PMI came in at 50.3 in the month, down from 51.2 in March, moving closer to the 50-point mark that separates expansion from contraction.

Output increased at a slower pace and production growth softened for the second month in a row. New orders from abroad increased at the slowest pace so far this year.

“While some companies indicated that new product launches contributed to higher new orders both at home and abroad, others commented that relatively muted customer demand had weighed on growth,” according to the Caixin China general manufacturing PMI.

As such, purchasing activity slowed to a “marginal” pace and stocks of finished goods were depleted for the fourth straight month.

“The downward pressure on manufacturing gradually emerged in April, with all indicators weakening,” Dr. Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said. “The Chinese economy may be starting to embrace a downward trend in the near term as prices of industrial products decline and active restocking comes to an end.”

Japan

Things in Japan, on the other hand, seem to be doing quite well.

The PMI for April was 52.7, up from 52.4 in March.

Output, new orders and employment all rose in Japan in the month, and export sales strengthened as a result. Purchasing activity was also up its highest since early 2016.

On the less positive side, the pressure this activity put on suppliers caused delivery times to lengthen “markedly,” which was only made worse by vendor stock shortages. Input costs climbed sharply and output prices hit a nearly three-year high.

“Growth of the Japanese manufacturing sector is being sustained at a healthy clip at the start of the second quarter, with the data remaining consistent with underlying rises in official manufacturing production of around the 2 percent mark,” IHS Markit senior economist Paul Smith said. “Supported by strengthening overall demand across the South East Asia region, exports are a key driver of growth, particularly for capital goods, with the PMI data again revealing the investment goods sector as the engine of overall expansion in April.”

U.K.

The U.K. also had good news to report in April, with its manufacturing activity reaching the highest it has been in three years, thanks to “robust business confidence,” which also fueled job creation.

The PMI came in at 57.3 in April, a fair jump from 54.2 in March and the highest of our key manufacturing countries reported this month.

Output, new orders and employment all grew, and stocks of purchases rose at a record rate. New export business increased but supplier delivery times lengthened.

“The weak sterling exchange rate helped manufacturers take full advantage of the recent signs of revival in the global economy, and especially the eurozone, which is enjoying its best growth spell for six years,” IHS Markit senior economist Rob Dobson said. “Although only accounting for 10 percent of the economy, the upturn in the manufacturing sector represents some welcome good news after the sharp slowing in GDP seen in the first quarter. The big question is whether this growth spurt can be maintained, especially given the backdrop of ongoing market volatility and a number of political headwinds such as elections at home and abroad.”

Eurozone

As Dobson mentioned above, the EU saw its best rate of manufacturing expansion in six years.

April’s PMI was 56.7 compared to 56.2 in March.

Seven of the eight countries covered (Germany, Austria, the Netherlands, Italy, France, Ireland, Spain, Greece) all saw operating conditions improve save for Greece, which has hit its eighth straight month of manufacturing deterioration.

Output, new orders and employment all rose at the quickest pace since 2011. Part of the increase in employment is attributed to rising backlogs of work.

Price pressures stayed high in April, with input costs increasing close to February’s 69-month high, which meant selling prices also rose, nearly reaching March’s six-year record.

“Companies are benefitting from the historically weak euro, improved growth in key export markets, rising domestic demand and ongoing central bank stimulus including record-low interest rates,” IHS’s Williamson said. “Optimism about the year ahead meanwhile appears unaffected by political worries, with the first four months of 2017 seeing confidence remaining elevated at the highest level since the future output series started in 2012.”

Mexico

Growth in Mexico slid in April with new orders rising only modestly.

The PMI for the month came down to 50.7 from 51.5 in March.

Manufacturing activity in Mexico reached a five-month high at the close of the first quarter but slowed in April thanks to lower production and subdued demand. Operating capacity was a concern further fueled by raw material shortages, and backlogs of work rose to the highest since October 2011.

“While manufacturing firms are relatively optimistic about the year ahead, they remain cautious in terms of inventory volumes. Stocks of finished goods fell to the greatest extent for four years in April amid efforts to improve cash flow against a backdrop of squeezed operating margins,” IHS Markit senior economist Tim Moore said. “There were also some reports that rising raw material prices had led to shortages of stock among vendors. Depleted inventories and supply chain disruptions contributed to the fastest rise in backlogs of work at manufacturing firms since October 2011.”


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