As we pen this Supply Chain Matters update on midday Cyber Monday, the U.S. stock market had dropped upwards of 250 points on the news of November’s manufacturing and supply chain activity reports reflected by various reported PMI levels.
We continue to believe that there is continued good reasons for such concerns.
As with all forms of data and information, it remains critical to be able to dive into the trending patterns and context of such data.
Select Global Indices for November
Some global supply chain management teams may be focused of the J,P. Morgan Manufacturing PMI Index which for November 2019, reported at a value of 50.3, which reflects expansion in several months. While the authors headlined the report as a sign of recovery and reflecting a seven-year high for this index, we advise readers and clients to exercise continued caution, given the consistent downward trend in various other major global regional indices, not to mention this sudden increase.
Reviewing the summary of the reported J.P. Morgan data, there is a clear indication that the November spike was primarily driven by a rise in consumer products production. That trend is consistent with November being the month just prior to the classic holiday customer fulfillment surge quarter. Further, the most optimistic reports originated from Greece, Columbia and Brazil leading the way, regions that were previously in highly contracted states.
U.S, based business media is focused on the ISM November 2019 Report on Business, which reported a November PMI value of 48,1 compared to October’s value of 49,4. According to the report authors: “November was the fourth consecutive month of PMI® contraction, at a faster rate compared to the prior month. Demand contracted, with the New Orders Index contracting faster, the Customers’ Inventories Index remaining at ‘too low’ levels and the Backlog of Orders Index contracting for the seventh straight month (and at a faster rate).” Of the 18 designated industries that are represented by the ISM panel, only five of those represented industries reported a state of growth in November. Such summary data collectively does not reflect a sense of momentum, rather, a trending of decline.
While the Markit Eurozone PMI reported a one percentage point increase from the reported October levels the authors also pointed to signals of ongoing contraction. October’s 45.9 value was clearly reflective of considerable contraction. Both the all-important production indicators of intermediate and investment goods sectors, which fuel future supply chain activity growth remained inside contraction territory during November, although in each case rates of decline were weaker.
A China Bounce?
One potential bright but still cautionary indicator was that of production and supply chain activity involving China.
The Caixen China PMI, an index more weighted toward China’s private and smaller manufacturing sector reported a November PMI of 51.8, reflecting two consecutive months of expansion, and a run of four months in consecutive improvement. In contrast, the official government PMI, which is weighted more that larger, state-owned manufacturing sectors reported a November value of 50.2, a 0.9 percentage point increase from the October value.
Here again, the report authors point to increased consumer goods production as fueling expansion whereas intermediate and capital goods production remain in contraction. Correlating this data with reports of China’s current economic growth also reflecting contraction, would lead to a belief that recent growth has centered on domestic consumer market needs vs. any increase in global based exports.
It goes without stating that one month of data does not make a discernable trend. Readers should not focus on a single month of data but on overall intersections of data.
A review of trend lines involving both multiple quarters in multiple consumer, intermediate and capital goods production sectors, correlated with various internal and external product-specific customer data provide supply chain management as well as sales and operations team (S&OP) teams the basis of predicting future activity levels. With the International Monetary Fund (IMF) World Economic Outlook published in October indicating very modest growth with a lot of added global-based uncertainties, teams are well advised to position the year 2020 with increased caution, with close attention to all available trending data.
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