In an early December 2015 Supply Chain Matters published our commentary, Both China and the U.S. PMI Levels at the Same Values: Should This Be a Concern? In our posting we called reader attention to both the ISM PMI, the reflection of U.S. based supply chain activity, and the Caixin China PMI had recorded the exact same value of 48.6, a sign of troubling supply chain and production activity contraction. 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, we opined that attention should be pointed to what’s going on in the U.S. as well.
As we pen this posting on the first Monday of 2016, the exact similar development has occurred, but this time, global equity markets are responding rather negatively to this news.
Today, stocks in China plunged nearly seven percent, triggering an emergency trading suspension after release of December’s manufacturing activity data. The Caixin China General Manufacturing PMI for December was reported as a value of 48.2 in December, down from 48.6 in November. The headline for this China PMI report was that December reflected the seventh time in the past eight months that production levels had fallen. According to the report authors, total new work continues to fall while new export orders declined for the first time in three months. With January traditionally being a slow production period because of the week-long celebrations and factory shutdowns related to the Lunar New Year, there is obvious cause for concern.
This morning, the ISM PMI, a reflection of U.S. production and supply chain activity was also reported as a value of 48.2. While the New Orders and Production indices registered higher readings than November, they each remain at contraction levels. Ten out of eighteen manufacturing industries reported contraction in December activity with an indication that contraction is faster. As we pen this commentary about two hours before the close of trading, the Dow Jones Industrial Index is down over 390 points, a reflection of both the China and U.S. supply chain news.
With the two largest economies reflecting continued manufacturing and supply chain contraction, the response at this point is even more pronounced. Events and growing tensions in the Middle East have further added to widespread concerns. The 4th quarter is traditionally one of robust activity as manufacturers close out the year with holiday and other end-of-year related orders, and now with two consecutive months of notable measured contraction, global investors have now taken pointed notice. Both of the globe’s largest economies face a greater risk of weakening economies and multi-industry supply chains are encountering the consequences.
The first of our 2016 Predictions for Industry and Global Supply Chains, available for complimentary downloading in our Research Center, predicts that industry supply chains should anticipate a year of slow or declining growth, with high uncertainty in planning product demand and supply needs. So far, the New Year is tracking toward such uncertainty, and once again, the two largest global supply chain hubs are reflecting another month indicating additional cause for concern.
Later in January, our Supply Chain Matters Quarterly Newsletter, sent to registered subscribers of this blog, will further analyze trends across broader global supply chain regional indices.