With the bulk of the month of the March 2020 global PMI indices now reported, there is ample quantitative evidence that reinforces the disruptive impacts of the ongoing COVID-19 coronavirus impact on multi-industry supply chain networks. Once more, the collective data would indicate a prolonged additional period of contraction, before global-wide activity levels return to growth. The Ferrari Consulting and Research Group

 

Global Wide Activity

The J.P. Morgan Global Manufacturing PMI report, a composite index produced by J.P. Morgan and IHS Markit, reported a value of 47.6 for March 2020, slightly up from the 47.1 reported for February. The authors further noted that the slight rise was almost entirely due to the March stabilization of manufacturing output across China.

According to the report’s commentary, output fell sharply as intakes of new business contracted at the fastest pace since March 2009, the time of the prior global-wide recession. Excluding activity reported for China, this global index would have been reported as 46.6 in March, it lowest level since May 2009.

Needless to state, the authors indicated that that the downturn was widespread by sub-sector and reflected declines in new orders, output, and new export orders across the consumer, intermediate and investment goods sectors. Further noted was that transportation disruption, increased border restrictions and plant closures all contributed to one of the steepest increases in vendor lead times in this survey’s history.

From the lens of Supply Chain Matters, the above trends do not bode well for a any robust recovery in global-wide supply chain management network wide activity levels.

 

Improvement Levels Across China

The reported Caixin China General Manufacturing Purchasing Managers’ Index (PMI) and China’s official government PMI Index for the month of March were at odds, but both reinforced a return to manufacturing and supply network expansion levels.

The latter’s report, which is more weighted toward general manufacturing and SMB activity across China, featured the headline: “Manufacturing sector operating conditions stabilize in March” The March 2020 reported value of  50.1 rose significantly from the 40.3 value in February, when most of China’s manufacturing sector was limited by strict shutdown measures as a result of COVID-19 country-wide lockdowns. The February production, new work and staffing levels were previously collectively reported as falling at the fastest rates since this particular survey began 16 years ago.

The latter government agency authored report which is more weighted toward state-owned manufacturers’ reported a March 2020 value of 52.0, an astounding increase from the 35.7 value reported in February. According to international business media reporting, China’s statistical bureau cautioned that the sharp rebound did not imply that economic activity had returned to pre COVID-19 levels. In fact, both of these reports indicated that product demand conditions remained fragile, with panel members indicating either delayed or cancelled orders. Of further overriding concern was average lead times for input materials, which, according to the Caixin report lengthened at the second-highest rate in over 12 years amid reports of reduced supplier capacity and material shortages.

 

Following the Path of Virus Outbreak

Following the path of the virus movement beyond China, The IHS Markit South Korea PMI report headline for March again reflected manufacturing output plummeting after  the February report had indicated the sharpest fall in production activity since 2015 amid factory closures as a result of the virus spread within that country. The reported March value of 44.2 was down from the 48.7 reported in February. According to the report’s authors, March survey data pointed to a steep and accelerated reduction simultaneously impacting both demand and supply side manufacturing networks. Once again, the data was characterized as the strongest deterioration since 2009.

Conditions reflected by the March IHS Markit Vietnam Manufacturing PMI headlined a record low in manufacturing PMI due to the effects of the virus. The commentary indicated that business conditions deteriorated to the greatest extent since this survey began in March 2011. Noted was substantial declines in both new orders and production, both falling to the sharpest rate in this survey’s history.

The IHS Markit Eurozone Manufacturing PMI also contracted sharply, recording a value of 44.5 in March, declining from the noted 49.2 recovery level reported in February. Reported was that output, new orders and purchasing all fell sharply while overall business confidence levels sank to historic low levels. Individual country levels were noted as lower, compared to February, with Italy experiencing the sharpest decline in operating conditions in nearly 11 years, with a PMI value reported as 40.3. At the aggregate Eurozone country level, the deterioration was again contrasted to 2009.

The Jibun Bank Japan Manufacturing PMI report for March headline reflected manufacturing contraction contrasted to aftermath of the 2011 major tsunami that impacted that country. The index fell to 44.8 in March from the 47.8 reported in February and characterized as the sharpest decline in demand for Japanese goods for almost nine years.

Finally, the March 2020 Manufacturing ISM Report on Business, reflecting U.S. production and supply chain activity levels, reported an overall value of 49.1 in March, slipping into contraction after February’s reported value of 50.7. The report authors readily indicated that April’s activity levels will be a lot worse given the current level of manufacturing operational plant suspensions across the U.S., Canada and Mexico. Rising worker layoffs remain a further concern going forward as the U.S. economy continues to feel the effects of residence sheltering and people distance measures.

 

Reader Takeaway

Global-wide PMI indices for March 2020 reinforce evidence of the significance of the simultaneous product demand, production and supply network disruption brought on by this ongoing pandemic, It is very likely to be what can likely be continued contraction over the current weeks, or perhaps months, as major global regions try to regain some sense of pre-COVID-19 activity levels.  When and until a global-wide vaccine  is developed and administered, the uncertainty remains unmistakable for multi-industry networks and supporting supply chain management and individual business sales and operations planning (S&OP) teams.

As communicating in prior Supply Chain Matters commentaries  active monitoring, supplier communications, continuous planning and scenario analysis are now crucial in determining the impacts for respective businesses and industries.  Likewise, the condition of global-wide transportation and logistics networks will remain a concern.

We plan to feature further insights both in future Research Advisories and our Quarterly Newsletters.

 

 

Bob Ferrari

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