Supply Chain Matters provides highlights perspectives and added insights on reported August 2023 global and regional production and supply chain PMI indices.
The August numbers once again signal a continued downturn in global manufacturing conditions as output and new order rates continue to fall. The three specific regions of concern are the Eurozone, United Kingdom along with Taiwan.
From our lens, the August data further reflects ongoing shifts in production sourcing within specific industry sectors.
Global Wide Manufacturing Activity Levels
Global manufacturing activity as reported by the J.P. Morgan Global Manufacturing PMI®, compiled by S&P Global in association with ISM and IFPSM, provided a banner headline of the downturn in global manufacturing levels slightly slowing in August. That stated, global output levels fell for the third consecutive month.
The August reported value rose to a three month high of 49.0 compared to the 48.7 reported for July and 48.8 reported for June.
According to the report authors: “Rates of decline for production, total new orders and new export business all slowed and employment edged higher.” Further reported was that contractions in intermediate and investment goods more than offset modest increases in consumer goods manufacturing levels. Reportedly business optimism has dipped to its lowest levels during the past nine months.
The top producing nations by notion of highest PMI levels were noted as India, Indonesia, Myanmar, Greece and Russia. The lowest production performance and associated supply chain activity levels were reported as that of Germany, Austria, Czech Republic, United Kingdom and Poland.
Key Highlights in Regional PMI Reporting
Factory Orders Plummet Across the Eurozone
The HCOB Eurozone Manufacturing PMI® report for August was headlined with plummeting new orders rates and rapidly depleting backlogs of work. The reported August value was 43.5, reflecting a 0.8 percentage point increase from the July 38-month low value of 42.7.
The August data indicated that Greece and Ireland were the only two countries to record production improvements during August. The four largest European manufacturing economies, namely Germany, France, Italy and Spain, collectively remained at production contraction levels.
In the dependent region of the United Kingdom, the S&P Global/CIPS UK Manufacturing PMI® declined to a 39 month low of 43.0 in August. That represented a 2.3 percentage point plunge from the 45.3 value reported in July. The August report pointed to an accelerated decrease in new order volumes and deteriorating conditions in domestic and overseas product demand.
Continued Deterioration in Taiwan
The August S&P Global Taiwan Manufacturing PMI® report was headlined with persistent deterioration in manufacturing conditions with production and new order volumes continuing to show a sharp fall. The reported August PMI value of 44.3 was slightly higher than the 44.1 reported for July.
The overall pace of decline in overall new business was noted by the report authors as the steepest since January and have led Taiwanese manufacturers to lower their purchasing activities, drawdown inventory levels and continued staff level reductions.
Continued Contraction Levels for the U.S. Manufacturers
Two indices of U.S. manufacturing activity levels both reflected production contraction levels in August.
The August S&P Global US Manufacturing PMI® was headlined with faster declines in new orders and output levels. The August value fell to 47.9 compared to the July value of 49.0. The report authors noted a sharper fall in new orders that led to renewed contraction levels. Manufacturers reportedly continued to deplete backlogged work as well as stocks of finished goods.
Commenting on the August data, Chris Williamson, Chief Economist at S&P Global Market Intelligence noted in part:
“US manufacturers reported another tough month of trading in August. Output has fallen back into decline after a brief respite in July amid an increasingly steep deterioration in order books. Orders are in fact falling faster than factories are cutting output, suggesting firms will need to continue scaling back their production volumes into the near future.”
The Manufacturing ISM Report on Business® reported an August value of 47.6 representing a 1.2 percentage point rise from the July PMI value of 46.4. Reportedly new orders contracted for the 12th consecutive month while production volumes increased modestly. The inventories index decreased 2.1 percentage points compared to July, a further indication that U.S. manufacturers are continuing to draw down inventory levels.
Commenting on the August data, Timothy R. Fiore, Chair of the Institute of Supply Management® Manufacturing Survey Committee, noted in-part:
“Demand remains soft but production execution is consistent with new, reduced output levels based on panelists’ companies order books. Suppliers continue to have capacity. Prices are generally stable. Sixty-two percent of manufacturing gross domestic product (GDP) contracted in August, down from 92 percent in July, a positive trend for the economy”
India’s Manufacturing Sector Gaining Significant Momentum
Overall manufacturing growth continued to accelerate across India during August amid the region being recognized as an alternative production source beyond that of China.
The S&P Global India Manufacturing PMI® rose to a level of 58.6 in August compared to 57.7 in July. The August report was headlined as sales and production levels rising at the fastest rate in almost three years. Further reported was the fastest uptick in new orders since January 2021. Specially noted: “Competitive pricing and advertising were also cited as factors behind sales growth.” The August report indicated that purchasing levels have risen sharply, and noted as the fastest growth rate in 12 years as Indian manufacturers step-up production output levels.
China’s Factory Activity a Mixed Picture
The two recognized indices of PMI within China indicate that prior manufacturing contraction levels in July may have bounced back in August.
The Caixen China General Manufacturing PMI®, a reflection of either private or SMB businesses was headlined with operating conditions for Chinese manufacturers improving during August. The reported August value 51.0 represented a 1.8 percentage point increase over the July value of 49.2. The latest report pointed to operating conditions across the manufacturing sector improving at the quickest rate in six months amid reported firmer market demand levels. Noted was a renewed increase in new order rates buoyed by domestic demand levels.
China’s official PMI index compiled by country’s National Bureau of Statistics (NBS) and weighted toward state-owned manufacturers, rose to a level of 49.7 for August compared to 49.3 reported for July. That stated, the reported value represents the fifth consecutive month of contraction activity. Reportedly new orders reverted to expansion for the first time in five months while factory owners indicated that producer prices were improving for the first time in seven months.
Zhao Qinghe, a senior NBS official, indicated in a statement to global business broadcasting network CNBC:
“The survey results show that insufficient market demand is still the main problem that enterprises are facing, and the foundation for the recovery and development of the manufacturing industry needs to be further consolidated.”
Business and global media continues to report that China’s economy is showing added signs of weakness beyond the manufacturing sector, to include the services sector which contracted for the fourth consecutive month in August. There remains increasing concerns indicating that the country’s economy is under stress related to declining consumer confidence levels, rather fragile financial conditions involving the country’s real estate sector and rising unemployment levels among the country’s working youth.
The Wall Street Journal has reported (Paid subscription) that large U.S. companies doing business in China are growing increasingly pessimistic that any post pandemic boom will materialize.
Added Supply Chain Matters Insights and Perspectives
In our summary of June and Q2 PMI reporting, along with that of July, we indicated to readers and clients that we sensed by reviewing leading indicator PMI sub-indexes that added contraction was in-store for the current quarter, and perhaps for the final quarter. This latest global production index data continues to reinforce a period of rather muted product demand levels among multiple industry sectors.
Leading indicator indexes reflecting tepid new order rates and souring business optimism reinforce that production contraction levels will likely continue along with added concerns of manufacturing recession levels across Europe and the UK. Taiwan’s decline remains directly related to both China along with continued constrained demand levels for high tech, smartphone and consumer electronics.
We sense that the accelerating manufacturing growth across India is reflective of changing global sourcing strategies within specific industry sectors. In a prior blog posting authored by our research arm, Added Evidence of Emerging Regionalization of Global Supply Networks, highlighted two recently published research studies proving data of both a reallocation of component and production sourcing away from China and favoring areas such as India, Vietnam and Mexico.
On a positive note, there is once again continued evidence that global wide industry chain volatility levels have subsided to pre-pandemic levels, including predictable supplier lead times. The S&P Global PMI™ Commodity Price and Supply Indicators report for August indicates that global price pressures fell for the fourth consecutive month with 16 of 26 monitored commodities falling in price levels.
Once again, the implication for multi-industry businesses, their procurement sourcing and supply chain teams remains a diligent assessment of the global and domestic supply chain landscape relative to demand and supply trending, along with the various business and supply chain downside or upside risk factors. As the final quarter approaches, businesses and their associated supply chain management teams will likely have a relook for expected 2024 product demand and supply needs. This exercise will more than likely require a good amount od scenario based or what-if planning approaches.
Bob Ferrari
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