Supply Chain Matters provides highlights of reported February 2024 global and regional production and supply chain PMI indices.

Overall, global activity reportedly showed signs of increased production output for consumer goods production levels but continued muted growth for intermediate supply network and investment goods production levels.

Slight Rise in Global Wide Production Activity

Global-wide manufacturing levels as depicted in the J.P. Morgan Global Manufacturing PMI® was headlined with back-to-back expansion levels in February. However, the published index indicated expansion level was rather mild, and was missing PMI data from South Korea which experienced a slight PMI contraction.

Report commentary further indicated that while global consumer goods production levels features solid monthly growth, both the intermediate and investment goods sectors were marginal in growth. These latter two dimensions are a reflection of overall multi-industry supply network activity levels and momentum.

The February 2024 reading of 50.3 compared to a January reading of 50.0, and has increased 1.4 percentage points from the 48.9 reading reported at the end of 2023.

Output reportedly rose in China, India, Brazil and the United States, while declines continued in the Eurozone, Japan and the United Kingdom.

Business confidence levels remained positive, reportedly staying close to January’s nine-month high.  Also noted was that average supplier lead times were broadly unchanged in February.

India again led all other regions, while Germany and Austria remain at highest levels of PMI contractionary levels.

Commenting on the February data and specifically signs of global momentum, Bennett Parrish, Global Economist at J.P. Morgan indicated in part: “An improving orders-to-inventory ratio and upward momentum in both new export business and employment all suggest the underlying dynamics of the manufacturing sector are also moving in the right direction. Supply chain stresses seem to have faded somewhat, at least on aggregate.”

 

Added Gains in India’s Manufacturing Sector

Overall manufacturing activity across India reportedly rose to a five-month high in February coupled with what was noted as the strongest expansion in export growth.  The HSBC India Manufacturing PMI® rose from 56.5 reported in January to 56.9 in February, the highest of all global regions.

Reportedly production output level increases were fueled with further increases in new orders with manufacturing output described as the strongest seen for five months. Capital goods orders were noted as leading in this growth momentum.

New export orders were noted as rising at the fastest rate in nearly two years. For the first time in many months, report authors identified export order demands originating countries as being Australia, Bangladesh, Brazil, Canada, China, Europe, Indonesia and the United States. We view such an indicator as clear evidence that sourcing for lowest cost manufacturing is again apparent among multi-industry supply networks.

 

Contrasting Reporting for U.S. Manufacturing

Among the two reported PMI reports relative to U.S. manufacturing activity levels, there was contrasting and disparity as to trending.

The S&P Global US Manufacturing PMI® February report was headlined with U.S. manufacturing activity improving at the fastest pace since July 2022. This index posted a value of 52.2 for February, contracted with 50.7 reported for January. The report noted that the February upturn was supported “by a renewed increases in production and a quicker rise in new orders.”

Additionally noted was that panelists pointed to more favorable demand conditions in February with new order growth rates at their strongest pace in 21 months. New export orders reportedly increased for the first time in three months while selling prices were noted as increasing at the fastest pace in ten months.

Commenting on the February data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence indicated in part: “Manufacturing is showing encouraging signs of pulling out of the malaise that has dogged the goods-producing sector over much of the past two years. After a long spell of reducing inventories in order to cut costs, factories are now increasingly rebuilding warehouse stock levels, driving up demand for inputs and pushing production higher at a pace not seen since early 2022.”

The separate Manufacturing ISM Report on Business® reported a contractionary February PMI value of 47.8, compared to 49.1 reported for January. Noted was that the U.S. manufacturing sector continued to contract, and at a faster pace than January. Reportedly, new orders and production employment were contracting while supplier deliveries were slowing.

Eurozone Factory Downturn Again Moderates

The HCOB Eurozone Manufacturing PMI® report for February was again headlined with tentative signs of recovery with forward-looking indicators continuing to signal their softest declines. The index reportedly was unchanged with a February reading of 46.5 compared to 46.6 reported for January.

Noted in the report was that the February index drop “was entirely driven by the largest economy of the single currency union, Germany, which registered its sharpest deterioration in four months.” Stronger performance was noted for Greece and Ireland, both reporting 24 and so month highs, respectively.

Meanwhile the related S&P Global UK Manufacturing PMI® posted a slight increase, rising to 47.5 in February, with manufacturing production falling for the twelfth consecutive month. United Kingdom manufacturers additionally pointed to the ongoing Red Sea shipping crisis leading to added supply disruptions.

 

China’s Production Activity Levels Again Contrast

The two recognized indices of PMI activity levels within China again indicated differing manufacturing activity levels in February, again adding to concerns for the country’s manufacturing economy.

China’s official PMI index compiled by country’s National Bureau of Statistics (NBS) and weighted toward state-owned manufacturers declined slightly to a level of 49.1 in February. That compared to 49.2 reported for January. The February decline was mostly attributed to the Lunar New Year Spring Festival as many factories curtail operations. The production index reportedly declined 1.5 percentage points in February to a value of 49.8. The new orders index was reportedly flat.

The Caixen China General Manufacturing PMI®, a reflection of either private or SMB manufacturers was headlined with a slight improvement in business conditions in February. The reported February value of 50.9 increased slightly from 50.8 reported for both January and the end of December last year. The February report noted that new orders placed with Chinese goods producers rose at a quicker pace in February, but was marginal overall. We would add our observation that this is typical given the typical post Lunar New output increases derived from the seasonality of spring and summer inventory order rates.

 

Slight Improvement Among Grouping of ASEAN Manufacturers

During 2024 we include for our readers highlights of the S&P Global ASEAN Manufacturing PMI®. This index is a compilation of seven ASEAN nations- Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. These nations reportedly account for 98 percent of ASEAN manufacturing value added.

The February report was headlined with a slight improvement in operating conditions, with a PMI reading of 50.4 in February compared to 50.3 in January, and 49.7 reported for December of last year.

Noted was a sustained rise in production levels and a further drop in backlogs of work. New orders reportedly remained in contraction territory for the sixth consecutive month. Further noted was that export demand for ASEAN goods weakened again in February, extending the sequence of contraction to 21 months. Inflationary pressures were reported noted as historically strong with input costs rising at the sharpest pace.

 

Added Insights and Perspectives

In our Supply Chain Matters December highlights, and again in our published January highlights of global production and purchasing activity levels, we have called attention to leading indicator indexes reflecting tepid new order rates.

January and now February data reinforces that production levels have improved for domestic consumer goods demand but remain muted for intermediate supply network and export related production demand.

The World Trade Organization has recently warned that global wide trade is performing weaker than expected in 2024 amid continued economic and geo-political tensions.

Once again, increases in global production momentum will hinge on what occurs in the now post Lunar New Year period. Production and shipping increases have traditionally been reflective of inventory stocking needs for Spring and Summer product demand customer fulfillment.

Business level sales and operations planning, and customer fulfillment teams are again advised to increase their monitoring and sensing of global and domestic product demand levels. Inventory management and cost control remains paramount including mitigating the risks of added disruptions in global wide ocean transport brought about by the Red Sea and associated Suez Canal diversions as well as Panama Canal transit time increases.

Bob Ferrari

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