Global supply network activities continued toward a declining trend by the end of Q3 showing continuing signs of a global trade induced slowdown.

Global manufacturing and supply chain activity as reflected by The J.P. Morgan Global Manufacturing PMI, published by IHS Markit Ltd. reached a two-year low by the end of September. The index fell to a level of 52.2 in September, drown from the 52.6 reading in August and reflecting a 22-month low in activity levels. The overall average PMI value for all of Q3 slipped 0.3 percentage points from that of Q2 and has further slipped 2 full percentage points from the beginning of 2018.  Global Trade

The U.S. remained the only bright spot amid reported declines in both Developed and Developing  global regions. PMI levels among the Eurozone region reflected what was termed as the slowest growth in manufacturing for the past two years.

For China, both the Caixin China Manufacturing and official China Bureau of Statistics PMI dipped again in September. The Caixin report, which is more reflective of general industry reached the 50 mark, just at the crest of a contraction condition. The J.P. Morgan report noted that performance of emerging markets (on average) provided the main drag on global manufacturing growth. Declines were reported for Brazil, Colombia, Indonesia, Taiwan, and Myanmar.

Regarding Taiwan, output fell for the first time in over two years while average Q3 PMI for Q3 declined 1.9 percentage points over Q2’s average. Noted was that export sales declined at the quickest pace since early 2016 with report panelists citing weaker demand in markets such as China, Europe and the United States.

Of ongoing concern is that both manufacturing output and new orders both eased to two-year lows which the authors attribute to declines in international trade volumes. The level of new export work was reported to have decreased across emerging markets for the sixth straight month.

There was some good news in that indexes related to both input and output prices both declined in September.

 

Our Perspective

When one quarter remaining in 2018, the building threats of a global trade and tariff induced slowdown continue to increase across multiple global regions. While the United States remains an exception, the ISM PMI value declined 1.5 percentage points from August to September, with the New Orders index declining by a significant 3.3 percentage points.  The monetary impacts of added tariffs remain priced into industry supply chain cost structures. That, from our lens, remains not a good sign for future activity needs.

Beyond 2018 reflects growing concerns for added shocks to industry supply networks. Today, J.P. Morgan indicated a base on the likelihood of  a”full blown trade war” between the United States and China, representing the globe’s two largest economies . According to the global banker,  a scenario of tariffs on upwards of $500 billion in commerce flows seems likely with little signs of mitigating forces. Such a base case could negatively impact China GDP output. We hasten to further emphasize that such a scenario has significant implications of multi-industry supply networks and future activity levels.

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