Last week’s reports of various production activity indicators reflecting on December 2012 indicate a consistent global supply chain picture with one alarming surprise.

U.S. factory activity reflected in the Institute of Supply Management (ISM) PMI index indicates activity expanded modestly in December.  The ISM PMI in December rose to 50.7, up 1.2 points from November. It indicates some modest expansion but by no means, picking up any substantial momentum from other readings during 2012. ISM reports that 9 of the 18 industries tracked indicate contracting activity. New orders remained flat, but imports and exports expanded somewhat from previous periods. Inventories contracted by over two basis points, which we believe is a significant achievement.

Purchasing manager indexes reflecting on China, India, South Korea and Taiwan indicated that manufacturing activity within Asia’s core manufacturing regions is gaining some modest momentum. The HSBC Asian electronics lead indicator posted its highest reading since March 2012. The HSBC PMI for China rose to 51.5 from 50.5 in November. South Korea recorded a reading of 50.1, up from 48.2 in November while Taiwan’s PMI reading was 50.6, a significant boost from November’s 47.4 reading. The HSBC PMI reading for India came in at 54.7, up one point from the 53.7 recorded in November.

The alarming surprise was Singapore, a stalwart of global supply chain activity. That country reported that it only narrowly avoided slipping into recession in the final quarter of 2012. Manufacturing activity slipped 1.5 percent in the fourth quarter on top of the 1.3 percent decline reported in the third quarter. According to the Financial Times, a third of Singapore’s manufacturing activity is concentrated in high tech electronics, with most being exported to the eurozone countries.  The FT byline was that the latest downbeat data is the first clear sign that Singapore is entering a period of slower growth in terms of manufacturing.  Also alarming was reporting from the Maritime and Port Authority of Singapore indicating that November throughput of shipping containers was the lowest since February of last year. The Prime Minister of Singapore announced that the Singapore economy would expand by one to three percent in 2013, far lower than the five to seven percent growth rates of previous years.

To no surprise, production activity among eurozone countries continues to struggle as Europe’s manufacturers continue to respond to a worsening economy. The Markit Eurozone Composite PMImonthly index recorded a 47.2 reading in December.  The Markit News Release notes that the average reading for Q4 was 46.5 and little changed from those recorded in Q2-Q3 of 2012. In its reporting, The Wall Street Journal notes that the 17 eurozone nations recorded a second straight fall in quarterly economic output, meaning that they are officially in recession.  Markit notes that while France, Italy and Spain remained in recession, the rates of contraction for all three of these countries is easing. Manufacturing activity in Germany remains in contraction while services has shown solid expansion. Generally, new orders declined for the seventeenth straight month with the exception of Ireland, which reported an increase in new orders. Of added concern, in our view, is that input prices rose at a slightly sharper pace in December, which is not a good sign.

Thus the global supply chain continues to deal with the effects of stagnant production activity among the Eurozone countries and some resiliency reported across Asia.  The U.S. remains in a period of flat and uncertain growth brought about by continued concerns focused on Congressional inaction and stalemate concerning budget deficits and spending. As noted in our Supply Chain Matters 2013 Predictions for Global Supply Chains, we believe that continued uncertainty will continue to challenge global supply chains throughout the coming year as supply chain executive teams and strategists navigate both challenging and promising markets.

Bob Ferrari