April's a Softer Month for Global Manufacturing

Written by Sandy Williams

Global manufacturing started second quarter with a small hop rather than a jump. The JPMorgan Global PMI posted 53.5 in April, up slightly from March’s six-month low of 53.3.

“April PMI data signaled a marginal pick-up in the rate of expansion of the global manufacturing sector, the first growth acceleration seen since the turn of the year,” said David Hensley, Director of Global Economic Coordination at JPMorgan. “Forward-looking orders data point to solid output gains in coming months, constrained by a cooling in the inventory cycle.”

Output expanded slightly as did new orders, but both were subdued compared to the beginning of the year. JPMorgan attributed a slower export growth for the lackluster gains. Backlogs and supplier delivery times lengthened. Vendors noted higher prices for raw materials as demand outpaced supply. 

Manufacturing employment levels rose for most nations, however, reduction in staffing occurred in China, South Korea and Thailand, while Indonesia remained unchanged.

Eurozone manufacturing slowed in April with the IHS Markit Eurozone Manufacturing PMI falling to a 13-month low of 56.2, down from 56.6 in March. Netherlands, Germany, Italy, Spain, and Greece registered slower rates of growth, Austria was unchanged, and improvement was noted in France and Ireland. 

“Supply constraints—including raw material scarcities, supplier delivery delays and skill shortages – have constrained production,” said IHS Markit chief business economist Chris Williamson, adding that some of the  adverse factors will change in the coming months. “However, anecdotal evidence from the surveys also highlights how demand has been curbed by other issues such as the stronger euro and rising prices. Uncertainty has also intensified due to worries regarding trade wars and Brexit, underscoring downside risks to the outlook.”

China saw subdued demand in April with only a modest increase in output and new orders. Exports fell as demand from international markets deteriorated with new export sales declining for the first time since November 2016. Inventories were reported higher for both inputs and finished items. 

The Caixin China General Manufacturing PMI inched up to 51.1 in April from 51.0 in March. “Overall, operating conditions across China’s manufacturing sector continued to improve in April. But uncertainty in exports has increased significantly and the dependence of the Chinese economy on domestic demand is rising,” said Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group.

Russia manufacturing reached a three-month high in April supported by higher output and new orders. Employment levels expanded in response to increased demand. The IHS Markit Russia Manufacturing PMI registered 51.3, up from 50.6 in March.  Input prices and output charges jumped at the fastest rate since September 2015 partly as a result of a less favorable exchange rate and higher costs for raw materials.

South Korea manufacturing conditions suffered their sharpest decline since November 2016. The Nikkei Manufacturing PMI fell to 48.4 from 49.1 in March. Output declined on fewer sales, particularly automotive and electronics, as well as shortage of skilled labor. New export orders fell markedly, especially to China and Japan. Input prices jumped but overall inflation growth was only slight for April.

The IHS Markit Mexico Manufacturing PMI fell from 52.4 to 51.6 in April as orders and output expanded at a slower rate. Export orders increased for the second month in a row with reports indicating higher sales to South America and Asia. Higher prices were reported for a wide range of raw materials, particularly steel. Optimism was strong among manufacturers with most expecting the current slowdown to be temporary.   

New orders jumped in Canada in April but sales volume outpaced production capacity adding to backlogs. Firms also reported supply chain disruptions and longer supplier lead times. “Worsening vendor performance was attributed to a range of factors, including manufacturing capacity constraints (especially at steel mills), shipping delays for materials imported from Asia and ongoing issues with truck driver availability in the U.S.,” said IHS Markit.

Rising prices on steel and other raw materials put upward pressure on input costs, increasing overall cost burdens at the steepest rate since March 2014. Higher operating costs and strong demand led to a sharp increase in output charges. Business optimism was at a 12-month peak. The IHS Markit Canada Manufacturing PMI posted 55.5 in April, little-changed from 55.7 in March and well above the no-change mark of 50.0.

Operating conditions for manufacturers in the United States improved at the fastest rate since September 2014, said IHS Markit. Demand was robust in April, with production growing at its fastest rate since 2017 as new orders poured in. The pace of growth caused supplier delivery problems and pre-production inventories rose only fractionally during the month. The IHS Markit Manufacturing PMI rose to 56.5 in April from 55.6 in March.

“April saw U.S. manufacturers reporting the strongest monthly improvement in business conditions since September 2014,” said Williamson. “The survey suggests the economy has started the second quarter on a solid footing and sends an encouraging signal for GDP growth to accelerate after the modest 2.3 percent rate of expansion seen in the first quarter.”

Williamson predicts strong growth will persist through May but with some risks to inflation. “Warning lights are being flashed in relation to inflation, however, with factories reporting the strongest rise in prices for nearly seven years. Suppliers are hiking prices in response to surging demand, while tariffs and higher oil prices are also exerting upward pressure on costs. With the average price of goods leaving factories rising at the fastest rate since 2011, consumer price inflation looks set to accelerate.”

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