This week, Supply Chain Matters was reviewing the various global PMI indices (reporting of production and supply chain activity) for November and we noticed a noteworthy development. Both the ISM PMI, the reflection of U.S. based activity, and the Caixin China PMI, recorded the exact same value of 48.6, a sign of activity contraction. The 4th quarter is traditionally one of robust activity as manufacturers close out the year with holiday and other end-of-year related orders.
As readers are most likely aware, the China number should not surprise. That country’s production activity has been on a significant downslope for several months now and once again crossed below the 50 contraction value in March of this year. What should be a surprise, well as a concern for industry supply chain teams is the state of U.S. activity as we approach the start of 2016. The headline associated with the latest reported number was depicted as contraction for the first time in nearly three years, since November of 2012.
U.S. activity began the year at a value of 55.5 after a rather robust year in 2014. In reality, the U.S. was the leading global PMI benchmark providing signs of solid resiliency. However, that number has fallen nearly 7 percentage points since the start of this year. Other concerning indices were New Orders decreasing by 4 percentage points, with the Production Index falling to nearly the same level. Of the 18 industries polled, only five indicated growth. The remaining industries reporting contraction are somewhat significant and included Apparel, Plastics and Rubber, Machinery, Appliances, High Tech, Fabricated Metal and Chemical Products.
As noted in our prior commentaries, U.S. based manufacturers have been challenged by the current high value of the U.S. dollar compared to other currencies, making manufactured goods more expensive than goods produced in other global locations. While the U.S. economy seems to remain robust, contraction signs are appearing in supply chain activity. We believe this should be of some concern for supply chain executives responsible for strategic sourcing.
We elected to publish this commentary as a reference point, a time when the world’s two largest economies and engines of supply chain activity both reported similar PMI readings. While negative changes surrounding China’s PMI garners immediate business headlines, attention should be pointed to what’s going on in the U.S.
We should all know more in the coming months.