Supply Chain Matters provides readers a further installment in our global supply chain assessment series in providing highlights on reported March 2024, and Q1-2024 global and regional production and supply chain PMI indices.

 

Global Manufacturing Output Levels Strengthen

Global-wide manufacturing levels as depicted in the J.P. Morgan Global Manufacturing PMI® ended March on an optimistic footing.

The March reading of 50.6 was a 0.3 percentage point increase from February’s 50.3 reading. This index closed Q1-2024 at 1.8 percentage points higher that the December 2023 ending value.

What was more noteworthy was a report headline indicating that global wide manufacturing growth has strengthened with an increase in new orders and stabilization in manufacturing employment levels. Further reported was that the upturn in output broadened within all three production sectors, which being consumer, investment and intermediate goods.

Of further significance was the March report indication that the rate of growth in global manufacturing output has accelerated to a 21-month high.

India has again demonstrated the highest level of PMI growth and the report authors point to Greece, Indonesia, Russia and Brazil as demonstrating stronger rates of expansion. Growth expansion has returned across China and the U.S. along with Vietnam, Thailand and Indonesia.

The Eurozone remains a drag on global manufacturing output with reportedly steep downturns again occurring in Germany and Austria.

Global wide production PMI trending

 

 

Q1-2024 Highlights

The average PMI level for the three months of Q1-2024 was 50.3 reflecting a 1.3 percentage point increase over the average of Q4-2023. As stated, the March report pointed to further increases in both input costs and selling prices by the end of the first quarter.

Business sentiment has reportedly remained close to a nine-month high with noted added optimism in the intermediate and investment goods industry sectors.

 

 

Key Highlights in Regional PMI Reporting

India’s Manufacturing Sector Momentum Accelerates

Overall manufacturing activity across India reportedly accelerated in March after gains in January and February.

The HSBC India Manufacturing PMI® (renamed in December) climbed to a noted 16-year high level of 59.1 in March, the highest of all manufacturing regions. The March value further represented a 2.2 percentage point increase over the 56.9 reported for February, and a 2.6 percentage point increase over the January level.

New order growth reportedly accelerated at the fastest in nearly three plus year, which is a likely indication that this region has become the new go-to for China Plus product sourcing strategies.

One of the more important observations from the March S&P Global report was the following:

Inflows of new work strengthened from both domestic and export markets, the latter reportedly reflecting better sales to Africa, Asia, Europe and the U.S.”

 

U.S. Manufacturing Growth Shows Signs of Rebound

The two followed indices of U.S. manufacturing activity levels both reflected expansion in production and supply chain activity levels at the end of Q1-2024.

The S&P Global US Manufacturing PMI® March 2024 report was headlined with a factory output growth establishing a 22-month high.  While the March value of 51.9 slipped from the February value of 52.2, the latest report pointed sharper increases in output and manufacturing employment. The rate of production growth in March was described as, “the sharpest in almost two years.” Further, the level of new order growth was described as increasing for the third consecutive month. Of further specific mention was the following: “Firms remained confident that output will increase over the coming year, thanks to expectations for improving economic conditions, marketing efforts and improving capacity.”

The 2024 Manufacturing ISM® Report On Business® reported a March value of 50.3, an increase of 2.5 percentage points from the February value of 47.8. Commenting on the March data, Timothy Fiore, Chair of ISM’s Manufacturing Business Survey Committee indicated in-part: “Demand remains at the early stages of recovery, with clear signs of improving conditions. Production execution surged compared to January and February, as panelists’ companies reenter expansion.”

 

Mexico Production Level Unchanged

We wanted to include in our highlights of March and Q1-2024 PMI highlights the S&P Global Mexico Manufacturing PMI®.

The March report was headlined with Mexico’s manufacturing industry broadly stable in March with stronger expansions in new orders and production levels. What should be of interest to planners is the observations that new export orders decreased at the fastest pace in five months, with panelists specifically pointing to weaker U.S. order demand. According to the report authors, muted U.S. demand coupled with increased industry competition has dampened business optimism among the country’s manufacturer’s.

The March PMI value of 52.2 was essentially unchanged from the February level of 52.3. The January reading was 50.2. Where these concerns come more to light is in contracting Q1-2024 average 3 month PMI value of 51.6 with the Q4-2023 quarterly average of 52.2, in essence a 0.6 percentage point decline.

What may explain this increased concern is a prior Supply Chain Matters posting in late February highlighting reports indicating that China based automotive and other industry suppliers are being encouraged by dominant industry players to establish a presence in Mexico as a mechanism for both nearshoring and circumventing existing import tariffs.

Eurozone Factory Downturn Slightly Moderates

The HCOB Eurozone Manufacturing PMI® report for March was headlined with output and new order levels reportedly declining at their softest rates since early 2023. The reported March value of 46.1 fell 0.4 percentage points from the 46.5 reported for February, and 0.5 percentage points from the 46.6 reported for January.

The March report made specific mention of the impact of maritime disruption attributed to the diversion of ships from the Suez Canal as a result of Red Sea terrorist attacks.

Observed was that manufacturing conditions across Greece have improved to the sharpest extent in two years. Modest expansion were noted for Spain and Italy while the remainder of Euro countries “remained mired in contraction.”

The closely aligned S&P Global UK Manufacturing PMI® March report was headlined with the United Kingdom’s manufacturing sector showing tentative signs of recovery in March with output and new orders on the increase following year-long downturns.

 

China’s Production Activity Levels Expand

The global financial industry was especially keyed in with the two recognized indices of PMI activity both reflecting upbeat manufacturing activity levels and new order volumes.

China’s official PMI index compiled by country’s National Bureau of Statistics (NBS) and weighted toward state-owned manufacturers, reported a March value of 50.8, reportedly exceeding economists’ forecasts. For the full three months of Q1-2024, this index has averaged 49.7, 0.3 percentage points higher than the Q4-2023 average of 49.3. Reportedly PMI increase was largely driven by production output increases which rose to 52.2 in March from 49.8 in February according to a Bloomberg Intelligence economist. The equally important New Orders sub-index was reported as 53 in March compared to 49 in February.

The Caixen China General Manufacturing PMI®, a reflection of either private or SMB businesses was headlined with operating conditions improving at the quickest pace since February 2023. The reported March value 51.1 increased 0.2 percentage points from the February vale of 50.9, and 0.3 percentage points from the January value of 50.8. The report’s authors specifically pointed to a quicker rise in new orders motivating China based manufacturers to increase their production output levels. Further noted was that the country’s manufacturer’s have lowered their selling prices for the third straight month, “and the most pronounced pace in eight months.”

We would further add from our reading of business, economic and investment industry media reports point to China’s manufacturing sector being encouraged to export more aggressively to markets such as Europe and Russia on the basis of lower cost of goods, particularly in the automotive and high tech and consumer electronic sectors.

Added Signs of Sustained Growth Among ASEAN Manufacturers

Since December, we have included the S&P Global ASEAN Manufacturing PMI® index in our highlights. This index is a compilation of seven termed ASEAN nations- Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. These nations reportedly account for 98 percent of ASEAN manufacturing value added. The March report for this indices was headlined with manufacturing conditions improving for the third consecutive month. The reported March value of 51.5 increased 1.1 percentage points from the February value of 50.4, and 1.2 percentage points from the January value of 50.3.

An important caveat expressed by the report authors was that the March increase was primarily driven by: “domestic demand rather than international markets.” In contrast, noted was that the downturn in new export orders deepened in March, and that trend has extended to 22 months.

 

Added Insights and Perspectives

In our published January and February highlights of global wide PMI activity reporting, we observed that data reinforced that production levels improved for domestic consumer goods demand but remained muted for intermediate supply network and export related production demand. The March data changes that perspective, specifically the indication that the upturn in output broadened within all three production sectors beyond consumer goods.

However, is it important to discern where the bulk of preferred outsourced manufacturing, or new export demand is being channeled. From our lens, the data points to India. This is not only from the notions of China Plus sourcing actions, but is responding to export demand from other Asian, Europe and U.S. import needs.

The increasing export activity among China’s manufacturers is likely being channeled toward Russia and Euro sector markets either on the basis of lower cost, or providing an alternative to restricted product inflows as a result of global sanctions imposed on Russia.

The observations for what is occurring in Mexico is a further consideration, namely signs that China based suppliers are being encouraged to establish a U.S. nearshoring manufacturing presence.

It is therefore important for industry supply chain strategists, strategic direct materials sourcing and planners to understand these sourcing shifts and what they may imply in shorter or longer term windows.

What seems evident from our supply chain research perspective is that motivations for lowest cost sourcing remain an influence in global production activity levels in addition to added supply network resiliency.

 

Bob Ferrari

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