The J.P. Morgan Global Manufacturing PMI rose to a 21-month high in August, driven by the restart of production and businesses following COVID-19 shutdowns. The composite PMI rose to 51.8 in August from 50.6 in July, its second month in a row in expansion territory.
Manufacturing output grew for a second month after five months of decline. New orders rose mostly due to domestic demand as international trade continues to be muted. Exports increased from China, the U.S, Eurozone and the U.K.
Employment levels continued to fall in much of the world, but at a weaker pace. The U.S., Canada, Turkey and Brazil were among the nations where employment levels climbed.
The new orders-to-inventory ratio was at its highest level since January 2018. Vendor lead times continued to lengthen as supply chains continued to be disrupted. Input cost inflation was at a 20-month record. Business optimism was at a six-month peak.
“The recovery in the global manufacturing sector gathered further pace in August, with rates of expansion in output and new orders the steepest since mid-2018,” said Olya Borichevska, Global Economist at J.P. Morgan. “The upturn should strengthen further in the short term if lockdowns and other restrictions in place to combat the COVID-19 pandemic are eased further as expected. Business optimism and the orders-to-inventory ratio also point to further near-term gains. The labor market remains in the doldrums and could face prolonged weakness as companies restructure in light of the current normal.”
Manufacturing conditions in Europe remained stable in August at 51.7 with output and new orders improving at a marked rate. While most of the Eurozone saw solid growth, activity in Spain and France was subdued while conditions deteriorated in Greece. Backlogs increased slightly, but purchasing activity remained cautious with firms preferring to utilize existing inventory. Input costs were little changed, but output charges fell for a 14th month,
“Eurozone factory output rose strongly again in August, providing further encouraging evidence that production will rebound sharply in the third quarter after the collapse seen at the height of the COVID-19 pandemic in the second quarter,” said IHS Markit Chief Economist Chris Williamson. “Business expectations for output in a year’s time also rose to the highest for over two years as prospects continued to brighten from the unprecedented gloom seen earlier in 2020.”
The Caixin China PMI rose to 53.1 in August as new orders and production climbed on domestic demand. New export sales picked up at the highest rate of growth since January. Purchasing activity rose in tandem with production, although slightly easing from July. Employment levels appear to be stabilizing and backlogs increasing.
“The index has now risen for four months in a row, reflecting that the manufacturing sector continued to recover from the impact of the pandemic, and that the momentum of the recovery remained strong,” said Dr. Wang Zhe, Senior Economist at Caixin Insight Group. “An expansion of employment relies on long-term improvement in the economy. Macroeconomic policy supports are essential, especially when there are still many uncertainties in domestic and overseas economies. Relevant policies should not be significantly tightened.”
Manufacturing growth resumed for the first time since April 2019 in Russia. The IHS Markit Manufacturing PMI rose from 48.4 into expansion territory at 51.1. A solid increase in production was noted along with improved demand. The pace of new orders increased only slightly, but was the fastest since April 2019. Demand from abroad remained weak. Lower inventories led to an increase in purchasing activity in August, but higher priced raw materials increased input costs. Firms were not quite as confident in the outlook as in July, but optimism, overall, remained strong.
Mexico manufacturing activity was well below its North American neighbors with a PMI of 41.3, up from 40.4 in July. Orders continued to decline as clients remained closed due to the pandemic or reported low-capacity utilization. “The ongoing demand weakness has translated into further job losses, which will only put more strain on economic conditions going forward,” said IHS Markit Economist Eliot Kerr. “That view is aligned with firms’ expectations for a continued downturn over the next 12 months. Although sentiment improved again, on the whole, panelists expect activity to fall over the coming year, making large scale re-hiring unlikely in the short term.”
August was a good month for Canada manufacturers. The PMI recorded its strongest gain since August 2018, posting a reading of 55.1. New orders expanded along with orders from abroad, ending a five-month decline in exports. Higher production resulted in longer backlogs and increases in staffing. Supply chains continue to be pressured due to COVID-19 restrictions. Firms dug into inventory to fill production orders and clients depleted stocks of finished goods. Firms were optimistic regarding production growth, barring a resurgence of the pandemic.
The United States showed solid improvement in the manufacturing sector. The PMI rose to 53.1 in August as new orders and production rose sharply. Export orders increased for the first time this year and at the quickest pace in four years. Raw material shortages and supplier charges accelerated input inflation. Output charges rose only modestly in return. The increased demand helped spur employment growth in August.
“The manufacturing upturn gained further ground in August, adding to indications that the third quarter should see a strong rebound in production from the steep decline suffered in the second quarter,” said Williamson. “Key to the upturn was a jump in new export orders, which rose at the fastest rate for four years, reflecting improving demand in many foreign markets, and benefitting larger companies in particular. Disappointingly, new orders and export sales at smaller manufacturers continued to fall, highlighting an unbalanced recovery in favor of larger firms.”
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