Global manufacturing and supply chain activity and other specific regional geographic indices reflect a dip in activity this past quarter and a discernable slowdown from prior momentum.
If industry supply chain teams were seeking evidence of whether current global trade tensions and tariff actions were having a discernable impact, the latest indices do point to a turning-point.  This trend comes ahead of major new tariffs scheduled to go into effect in July, and perhaps beyond. 
Global manufacturing growth as manifested in the latest June 2018 numbers was manifested by the authors to be a drop-off in business optimism to a 19-month low. The J.P. Morgan Global Manufacturing PMI was reported to be 53.0 in June, a 0.1 percentage point decrease from that reported in May. The average PMI of all of Q2-2018 was 53.2, a drop of 0.8 percentage points from the average PMI reported in Q1. The authors noted that while output levels remained good in investment and consumer goods sectors, both sectors reflected slower growth. Overall, the report indicates that world manufacturing production rose at the slowest pace since July of last year, while new-order inflows eased to 19-month low.
The New Export Orders category within June’s report fell to its weakest value in nearly two years, and slipped further to below the 50 mark, an indication of export stagnation.
Added concerns are reflected in indices for input costs and output charges rising at a faster pace with purchase price inflation reported as being the highest in the past seven years. The authors note that current rates of inflation remained, on average, sharper in developed nations compared to emerging nations.
As our clients and blog readers are aware, one of our regular features of our Quarterly Newsletters is to reflect on the signposts of global manufacturing and supply chain indices. As readers can visualize below, global manufacturing and supply chain activity peaked at the end of 2017 and has since trended downward at the mid-point of 2018.
Compiling the regional geographic numbers, we observed that of the four major developed regions that we monitor (United States, Eurozone, Japan, Taiwan) all reflected reduced activity levels in Q2. The fastest growing region in June was the U.S., with the Q2 ISM June Report of Business Activity reflecting a value of 60.2. However, the overall three-month average of 58.7 was 1 percentage point lower than Q1’s average.
Among the five developing regions that we monitor (China, India, Indonesia, Mexico, Vietnam), activity varied by region, however, Vietnam demonstrated significant growth momentum in Q2, reflected in a 1.4 percentage point increase in quarterly PMI.
Our Perspective
Global supply chains are becoming far more agile in their ability to respond to either product demand or global supply trends. As the building threats of global trade and tariff actions increase, it would now appear that planning and response actions are already underway. On the other hand, the monetary impacts of added tariffs reflected in steel, aluminum and other intermediate goods and inbound costs seem to be already priced into industry supply chain cost structures. That, from our lens, is not a good sign.
Bob Ferrari
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