Many product management, procurement and supply chain planning teams remained concerned as to how the escalating Eurozone economic crisis will impact global economic and demand trends. Last week, economic forecasting firm Markit issued its flash Eurozone PMI and China PMI reports which both indicate that supply chain activity within these regions is significantly slowing.

The Flash Eurozone PMI Composite Index in May, made up of both manufacturing and services activity  was reported as 45.9, down from 46.7 in recorded in April, the fourth consecutive month of decline. The index was noted as: “…the fastest rate of decline of private sector economic activity since June 2009.” Manufacturing activity dropped at the steepest rate since June 2009, posting a stronger rate of overall contraction than that of services. Both Germany and France experienced continued contraction. Included in the index was a steeper drop in new orders, indicating continued contraction. Continued job cuts will most likely add to the 10.9 percent Eurozone unemployment rate recorded in March. While economists have yet to declare an official recession, the latest PMI data surely points to that reality.

On the slightly positive side, input and commodity costs within the Eurozone rose at a much more modest rate as weak demand for raw materials were reflected in recent pricing trends.

The HSBC Flash China PMI Composite Index was reported as 48.7 vs. 49.3 recorded in April, noting two consecutive monthly declines of that index. The Manufacturing Output Index was reported as 50.5 vs. 49.3 in April, indicating some stability. New domestic and export orders were similarly reported to be contracting at a faster rate.

Meanwhile the Markit Flash U.S. Manufacturing PMI was reported as 53.9 in May, down from 56.0 reported in April, but still reflecting positive activity. This reading compares with an average reading of 54.6 recorded in Q1 and an average reading of 54.3 recorded in all of 2011. New orders were noted as expansion, but at a slower rate while export orders were noted as expanding at a faster rate. Employment and work backlog were similarly reported as expanding, but at a slower rate.

Within our Supply Chain Matters Annual Predictions for Global Supply Chains, Prediction One noted an OECD prediction that GDP growth would remain weak in the advanced G-20 economies over the next two years, and that a marked slowdown, with patches of mild negative growth for the Eurozone.  That agency further predicted a gloomier outlook if EU leaders failed to restore market confidence or if financial contagion spreads to other countries. The latest Eurozone PMI data would seem to reflect that supply chains may be impacted by more of the latter if the EU does not get more aggressive in economic policy.

The takeaway from these latest Markit indicators is that supply chain and S&OP teams need to pay close attention to the discrete differences in economic trends occurring within each global region during the remainder of 2012.  A failure to differentiate output and fulfillment requirements by region, or failure to have back-up contingency planning, could result in negative performance indicators for the balance of the year.

Bob Ferrari