Global PMI Hovers Near 7-Year Record

Nations in the euro region drove growth during January, although down from December’s record high. The U.S. PMI was at a 34-month high and manufacturing activity accelerated in Mexico and Canada. Most Asian nations fared well in January with South Korea emerging from a minor contraction at the end of 2017.

“The start of 2018 saw a continuation of the solid upturn in global manufacturing performance, with rates of growth in production and new orders remaining close to December’s highs. With business confidence still robust and further job creation reported, the sector is on course to sustain its current solid pace of expansion into the coming months,” said David Hensley, Director of Global Economic Coordination at J.P. Morgan.

Eurozone manufacturing was close to a record high in January at a PMI reading of 59.6, down 2 points from December, according to the IHS Markit Eurozone Manufacturing PMI. The Netherlands was at a series-record high leading the region with a PMI of 62.5, followed by Austria and Germany at 61.3 and 61.1. The lowest PMI was Greece at 55.2, which was a 123-month high for that nation. New business flowed in from both domestic and export markets in January prompting firms to add to employment ranks. Input and output prices rose at faster rates in January.

“The extent to which demand has surged in recent months nevertheless continued to run ahead of capacity, leading to near-record increases in both backlogs of uncompleted orders and suppliers’ delivery times,” said IHS Markit Chief Business Economist Chris Williamson. “The hike in prices associated with the further shift to a sellers’ market for many goods was accompanied by a steep rise in oil prices during the month, resulting in a further intensification of cost pressures. With higher costs being increasingly passed on to customers, the survey sends a warning signal for a potential rise in future consumer price inflation.”

Russia manufacturing started the year with its strongest growth since July 2017. Robust orders from home supported higher production and export orders finally pulled from contraction. The IHS Markit PMI posted 52.1, from 52.0 in December.

“Despite greater global demand for raw materials and commodities putting added pressure on supply chains, both input cost and output charge inflation remained subdued in the context of the series history. In addition, many predict further interest rate cuts throughout 2018,” commented IHS Markit economist Sian Jones. “Goods producers remained optimistic towards the year-ahead outlook, with the degree of confidence rising to a four-month high in January. A number of panel members stated that positive sentiment was driven by more favorable global demand conditions.”

China manufacturing maintained steady growth in January, it’s Caixin China General Manufacturing PMI at 51.5, unchanged from December. A moderate increase in new orders and new export orders contributed to the strongest rise in production since December 2016. Inventories dropped somewhat as firms used existing inventory to fill orders. Purchasing activity rose along with longer delivery times. Upward price pressure on input costs and output charges slowed sharply.

“The manufacturing industry had a good start to 2018. Going forward, we should keep a close eye on the stability of the demand side,” commented Dr. Zhengsheng Zhong, Director of Macroeconomics at CEBM Group.

South Korea’s Nikkei South Korea Manufacturing PMI rose to 50.7 in January from contraction at 49.9 the previous month. New orders rose for the eighth month and spurred modest increases in production output. New export orders increased for the first time since August with higher sales to Australia, China, and Southeast Asia. Input buying picked up as stocks were depleted and manufacturers anticipated higher raw material costs. Input costs rose sharply compared to December. A raise in the minimum wage added to operating costs and discouraged new job formation. Job shedding continued on a course that began in September.

Mexico manufacturers rebuilt inventories while meeting increased new orders. The IHS Markit PMI rose to 52.6 from 51.7 in December and to a four-month high. Export sales continued to grow, but at a modest rate in January. Output jumped as manufacturers met burgeoning demand. Inventories increased putting pressure on supply chains and lengthening delivery times for the sixth month in a row. Input prices rose as manufacturers reported higher prices for imports and shipping. Costs were passed on to customers. Mexican manufacturers were mostly optimistic about the coming year with some concerns about the impending election and economic uncertainty.

Canada saw the fastest upturn in business conditions since April 2011. The January IHS Markit PMI rose to 55.9 from 54.7 in December. Production volumes were up, driven by domestic and export clients. Manufacturers cited better economic conditions and increased spending by U.S. clients. Backlogs rose at the fastest rate in seven years as manufacturers struggled to keep up with new orders. Supplier deliveries lengthened for raw materials, and tighter transportation capacity was noted. Input and output costs increased with metal, especially steel, and oil-related products widely cited.

United States manufacturing improved last month. The IHS Markit U.S. Manufacturing PMI rose 0.4 points to 55.5 in January. Production and new order growth accelerated to the sharpest rate in 12 months. Backlogs lengthened and a spike in purchasing activity contributed to longer lead times at suppliers. Input costs increased due to higher priced raw material and shipping costs, pushing output charges up. Employment growth remained strong. Manufacturer optimism was robust as survey respondents noted favorable market conditions and a sustained rise in new business and production.