Supply Chain Matters provides readers and clients with a further installment in our global supply chain assessment series in providing highlights on reported May 2024 global PMI activity levels.

 

Signs of Global Manufacturing Upturn

Global-wide manufacturing levels as depicted in the J.P. Morgan Global Manufacturing PMI® reportedly improved in May with output and new orders in indices on the rise.

The May reading of 50.9 was a 0.6 percentage point increase from that of April. Noted in this latest report was that three of the five sub-indices (output, new orders and manufacturing employment) were at levels indicative of improving operating conditions.

Specifically noted in this latest report: “May saw manufacturing production increase at the quickest pace since December 2021.” Growth accelerated in the intermediate goods sector which is an important leading indicator for industry supply networks. Report authors pointed to expanded output in the investment goods sector for the third time in the prior four months.

Business optimism across global manufacturing sectors reportedly one of the highest levels thus far in 2024, with developed nations being on-average, more optimistic than emerging markets.

Regionally, output growth reported increased in China, the United Kingdom and the United States. Rates of manufacturing contraction eased across Europe and in Japan.

 

Regional Highlights

India

The HSBC India Manufacturing PMI again led all regional reporting in May. Although the May reading of 57.5  slipped 1.3 percentage points from the 58.8 reported for April, this area’s production activities again led all other regions.

The May slowdown was attributed to a severe heat wave resulting in reduced working hours.

Reportedly internationally based export orders “increased to the greatest extent in over 13 years.” The current rate of expansion is noted as continual for the last three years. Report authors additionally noted that India manufacturing employment growth rose “to one of the greatest extents since data collection started in March 2005.”

 

United States

Among major regions, the two followed indices of U.S. production activity, the ISM Report on Business Manufacturing PMI, and the S&P Global U.S. Manufacturing PMI reported differing production activity levels for May.

The S&P Global U.S. Manufacturing PMI® was headlined with new growth returning along with faster rises in production and manufacturing employment. The May reading of 51.3 rose from the no-change 50 mark reported for April. Reportedly while customer demand improved, panelists pointed to muted economic conditions. Further noted: “The increase in new orders, alongside better material availability, led manufacturers to expand production at a solid pace in May, with the rate of increase quickening from that seen in April.”

The separate Manufacturing ISM® Report on Business recorded a May PMI value of 48.7, a decline from the April reading of 49.2. The report commentary observed that “after breaking a 16-month streak of contraction by expanding in March, the (US) manufacturing sector has contracted the last two months, and at a faster rate in May.” The report’s principal author Anthony Fiore further indicated in-part: “Demand remains elusive as companies demonstrate an unwillingness to invest due to current monetary policy and other conditions. These investments include supplier order commitments, inventory building and capital expenditures. Production execution continued to expand but was essentially flat compared to the previous month.”

China

China’s official PMI compiled by the country’s National Bureau of Statistics slipped into contraction for May with a reported value of 49.5. That compared to the reported 50.4 in April and 50.8 reported for March. The commentary related to May activity pointed to sub-indexes of new orders and new export orders both reflecting contractionary levels. Reportedly, manufacturing employment levels also declined.

As noted in our April Global PMI highlights, China’s policymakers are looking to the country’s manufacturing sector to offset existing declines in the country’s consumer and real estate markets. That in-turn has raised perceptions that China is leveraging its excess capacity to flood export market sectors.

The Caixen China Manufacturing PMI, reflective of private and mid-market industries conversely reported a May PMI reading of 51.7, up from the 51.4 reading reported for April and a 51.1 value reported for March. Reportedly, manufacturing production levels rose “at the fastest pace since June 2022, with firms in the consumer segment reporting especially sharp output growth in May.”

Separately this month, the International Monetary Fund (IMF) revised its growth forecast for China upwards of 0.4 percentage points to an expected 5 percent this year.

Eurozone Production Stabilizing

The HCOB Eurozone Manufacturing PMI® report for May was headlined with factory production close to stabilizing in May. The reported May value of 47.3 rose 1.6 percentage points from the value of 45.7 reported for April. Reportedly, while factory output fell, the contraction “was the softest in just over a year and only marginal overall.”

Further indicated was that improved PMI data was seen across the majority of countries covered by this survey. That stated, Germany and France, the two largest manufacturing economies, saw contractions slow, although Germany remains the worst performing manufacturing sector. The HCOB Germany Manufacturing PMI® registered a four month high May value of 45.4 compared to an April value of 42.5.

Other Asian Nations

The S&P Global ASEAN Manufacturing PMI® is a compilation of seven ASEAN nations- Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. These nations account for 98 percent of ASEAN manufacturing value added.

The May index of 51.7 was noted as a 13-month high, and compared with the April index of 51.0. The report commentary pointed to continued expansions in new factory orders, mostly driven by domestic demand. Manufacturers in this cluster reportedly further increased their production volumes, which was the most marked since April 2023. Business optimism among manufacturers across these nations reportedly remained optimistic regarding prospects for higher output for the remainder of 2024.

 

Added Insights and Perspectives

As noted in our perspectives related to 2024 PMI data reporting to-date, it remains important for industry supply chain strategists, strategic direct materials sourcing, and planners to understand these sourcing shifts and what they may imply in shorter- or longer-term windows.

This is especially pertinent with current indications of global supply network momentum increases possibly in-store for the second half of this year.

What remains evident from surveying the May reported indices is that motivations for lowest cost sourcing remain an influence in global production activity levels in addition to added supply network resiliency. The numbers for India and the ASEAN grouping reinforce this trend.

A further factor of ongoing concern is that the geo-political factors involving industry supply networks is becoming more complex with the recent announcement of added U.S. import tariffs on certain goods produced in China.

At the same time, global wide ocean container shipping costs have increased significantly. The Drewry World Container Index reached a value of $4,226 per 40 foot container in the week ending May 30. That reflects a reported 56 percent increase in the month’s timeframe based on the end of April reading.

This factor was reinforced by the S&P Global PMI® Commodity Price & Supply Indicator which reportedly indicated a sustained rise in price pressures across the global manufacturing sector in May. While supply pressures have reportedly eased slightly, transport capacity related shortages increased in excess of their long-run averages.

Global ocean container lines in-turn are raising expectations for higher container rates for the remainder of 2024 as a result of the Red Sea routing disruption along with a continued imbalance of available shipping containers among major exporting ports.

Bob Ferrari

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