Supply Chain Matters provides our monthly highlights commentary reflecting on May 2023 reported global and regional PMI indices. Once again, the numbers signal a state of stabilization within global supply chain networks. While global supply chain wide pressures have eased considerably, the data points to a number of warning signs that would suggest added contraction in the months to come.

 

Global 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 global manufacturing output rising for the fourth straight month, but with business optimism dipping to a five-month low. While supply chain pressures reportedly continued to ease, there existed added warning signs related to overall demand momentum. The reported value of 49.6 was unchanged as that of April as well as March.

The May report indicated that the global wide PMI has now been below the neutral 50 mark for nine consecutive months, and again an indication of manufacturing recession conditions.

What we found somewhat concerning was the indication that growth in manufacturing production accelerated to an 11-month high in May, and yet important leading indicators such as new business and new export orders have dropped to multi-month lows. That could signal even more added inventory exposures.

On a positive note, average purchase prices reportedly fell for the first time in three years while supplier lead times “shortened to the greatest extent since April 2019, amid reports of improved material availability and lessor supply chain pressure.” The latter has been reinforced by the April GSPI Index from the New York Federal Reserve, and now, the reported May GEP Global Supply Chain Volatility Index which indicated that “for the first time since June 2020, global chain capacity is now underutilized, indicating a shift to a buyers’ market.

JP Morgan Global Manufacturing PMI trending

Source: S&P Global Monthly PMI Reporting 

 

Highlights of Regional Reporting

Continued High expansion in India

Manufacturing activity levels across India remained at high expansion levels in May, outpacing all other regions. The S&P Global India Manufacturing PMI® rose from a value of 57.2 in April to 58.7 in May. The May report was headlined with PMI achieving a 31-month high, backed by record expansion in input stocks. Factory orders reportedly increased to the greatest extent since January of 2021, while May data reportedly indicated a sharp and accelerated rate of material purchases. Of added significance, export orders reportedly provided impetus to total new orders in May, reinforcing both domestic as well as internal product manufacturing demand.

Thailand a Regional Standout

A further regional standout, manufacturers across Thailand have reportedly experienced the fastest rates of demand for products on record, with production levels easing somewhat in May. The S&P Global Thailand Manufacturing PMI® declined from this survey’s record 60.4 value in April to 58.2 in May. This May reading reportedly marked the seventeenth straight month of growth, with report narrative indicating that foreign based demand “expanding at the quickest pace since July 2021.

 

Significant Contraction Across the Eurozone

The now renamed HCOB Eurozone Manufacturing PMI® fell to a reported value of 44.8 in May, one percentage point below the 45.8 value in April. The report indicated that the May number “signalled a further decline in the health of the eurozone manufacturing sector, and one that was the steepest in three years.” Regarding overall production output levels, the report authors indicated: “The decline in output was solid and the quickest since last November.”

Reportedly Greece was the only member state to register an improvement in operating conditions. To add further perspective to our prior Supply Chain Matters commentary indicating an economic and manufacturing recession now occurring in Germany, the separately reported HCOB Germany Manufacturing PMI© fell again in May to a value of 43.2 and noted as the lowest value in three years. This report further pointed to manufacturers’ expectations within Europe’s biggest economy now turning more pessimistic relate to future output needs.

 

Continued Contraction for the United States

Two indices of U.S. manufacturing activity levels both reported contraction level PMI activity levels for May.

The May S&P Global US Manufacturing PMI® was headlined with a: “Renewed decline in manufacturing sector conditions as weak demand dragged on performance.” The May value of 48.4 declined from the 50.2 value reported for April. Commenting on the May results, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence noted in part: “May saw a renewed deterioration of business conditions in the US manufacturing economy which will add to concerns about broader economic health and recession risks.”

The latest Manufacturing ISM Report on Business® reported a PMI value of 46.9 for May, 0.2 percentage points below the 47.1 value reported for April. The report noted that the May value represented “the seventh month of contraction and a continuation of a downward trend that began in June 2022.”

Timothy R. Fiore, Chair of the Institute of Supply Management Manufacturing Business Survey Committee noted in part: “The U.S. manufacturing sector shrank again, with the Manufacturing PMI® losing a bit of ground compared to the previous month, indicating a faster rate of contraction. The May composite index reading reflects companies continuing to manage outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period. However, there is clearly more business uncertainty in May.” Further noted in the May report: “New order rates contracted further, as panelists remain concerned about when manufacturing growth will resume. Panelists’ comments again registered a 1-to-1 ratio regarding optimism for future growth and continuing near-term demand declines. Supply chains are prepared and eager for growth, as panelists’ comments and the data support reduced lead times for their companies’ more important purchases.

 

Mixed Picture for China

The two recognized indices of PMI within China each indicated mixed conditions after easing back to contraction conditions in April.

The Caixen China General Manufacturing PMI®, a reflection of either private or SMB businesses was headlined with manufacturing growth improving to an 11-month high. Manufacturing business conditions reportedly improved for the first time in three months. The May recorded a value of 50.9 was 1.4 percentage points higher than the April value 49.5.  Average input costs reportedly fell solidly for the second month in a row.

China’s official PMI index compiled by country’s National Bureau of Statistics (NBS) and weighted toward state-owned manufacturers, declined again for the second straight month in May to a value of 48.8 compared to a value of 49.2 for April. Sub-indexes related to new orders and new export orders reportedly also contracted further in May raising concerns that the country’s consumer goods consumption will likely have to be the engine of near-term growth. Both the production index and new orders index remained at contraction values. The NBS did note that the PMI’s associated with equipment manufacturing, high-tech manufacturing and consumer products industries stood at 50.4, 50.5 and 50.8, respectively.

Economists observing the latest China PMI data are now expressing cautions as to whether China’s GDP goals for this year may need to be revised downward, absent added economic stimulus.

 

Significant Deterioration for Taiwan

The May S&P Global Taiwan Manufacturing PMI® report was headlined with business conditions across the country’s manufacturing sector deteriorating at a faster pace. The May PMI value of 44.3 dipped a significant 2.8 percentage points from the 47.1 reported in April.  The report narrative indicated that manufacturers in Taiwanregistered a rapid and accelerated fall in production in May that was the quickest for four months.”

On the optimistic side, muted demand conditions have reportedly led to the quickest improvement in supplier delivery times since January of 2009.

 

Vietnam Again in the Doldrums

The S&P Global Vietnam Manufacturing PMI® is here highlighted because the May value dropped deeper into contraction and “signaling a third successive monthly deterioration in operating conditions.”  The reported May PMI value of 45.3 dropped 1.4 percentage points from the April value of 46.7, with the narrative further headlined as “the steepest decline in new orders for 20 months.” Output levels reportedly decreased across each of the categories of consumer, investment and intermediate goods, with the latter reportedly having the steepest declines.

Commenting on the May report, Andrew Harker, Economics Director at S&P Global Market Intelligence noted in part: “The steepening decline in new orders during May is a cause for concern as it suggests that the Vietnamese manufacturing sector may be in for a lengthy downturn rather than a transitory soft-patch.

 

Added Supply Chain Matters Insights and Perspectives

The May PMI data reinforces that global-wide product demand levels continue to remain uncertain given inflation stressed consumers and businesses, and continued geo-political developments. A prior consensus of a belief that the second half of this year will present more normalcy continues to remain uncertain given a global inventory overhang being still evident and added signs that global wide product demand levels remain subdued. The exception is of course India and Thailand, and economists are likely going to dive more into the data to ascertain whether product demand is domestic or global in nature.

The promise of Vietnam being a recipient of a China Plus or back-up sourcing destination seems very much in question after five months of contractionary levels of  reported PMI data.

In our prior commentaries highlighting monthly global PMI indices to date, including our April summation of PMI reporting, our stated observation was that of stabilization. In other words, the bleeding of supply disruptions has coagulated. While global production levels reportedly remain at a sustained contraction level, we sense by reviewing trends in reported demand and new orders data that added contraction is in-store.

Upon pondering both our news feeds and our various published Supply Chain Matters commentaries over these past two weeks, we garner a sense that another phase of changes and consequent developments are impacting global and domestic supply chain activities. Significant drops in volatility can prelude corresponding drops in demand levels.

Once again, businesses and their respective supply chain management teams need to continue with a diligent assessment of the global and domestic supply chain landscape relative to demand and supply trending, along with various business and supply chain risk factors.

 

Bob Ferrari

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