With Q1-2020 global-wide  PMI indices now reported, there is ample quantitative evidence that reinforces the disruptive impacts of the ongoing COVID-19 coronavirus pandemic’s impact on multi-industry supply chain networks. The shock likely rivals or surpasses that of the 2008-2009 global recession.

In a prior Supply Chain Matters blog commentary, we highlighted PMI data reported for March 2020. In this commentary, we reflect on the data and trending for all of Q1-2020, and what that portends for the remainder of this year, if not longer.

The collective data implies a prolonged additional period of contraction, before global-wide activity levels return to some definition of a new normal.


Global Wide Activity  Global Manufacturing 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. For the three months of Q1, the average PMI value was 48.4, a 1.7 percentage point decline from the average of Q4-2019.

The authors noted that the slight rise was almost entirely due to the March stabilization of manufacturing output across China. That implies that the underlying trend is likely far worse.

A likely indicator of that trend is reflected in the J.P. Morgan Global Composite PMI, that in addition to manufacturing, tracks global services related panel survey data that includes new business, future activity, outstanding business and other related factors. The March value of this report was reported as 39.4, representing a 133-month low, with new manufacturing order intakes contracting at the steepest pace since early-2009. According to this report, global employment fell to the greatest extent since July 2009, with job losses reported across all nations included in this survey.

From the lens of Supply Chain Matters, the above two indices do not bode well for a any “V” shaped recovery and in many respects. Difficult and unforeseen challenges in either product demand or supply should continue to be experienced in the coming months, since many global manufacturers are shedding resources and capacity capability. Lead times will likely continue to extend, with any sense of available inventory taking on still unknown dimensions.



Impact on Major Economies

Developing Economies

A review of the grouping of countries which we group and monitor as Developing economies (China, India, Indonesia, Mexico, Thailand, Vietnam) noted that the overall Q1-2020 average PMI value for this grouping was reported as 49.0, reflecting a 1.1 percentage point decrease for this group average than that of  Q4-2019. With China being the epicenter of the coronavirus outbreak, and with this grouping being rather dependent on China for product demand and supply network activity levels. The prospects for the remainder of 2020 appear rather uncertain.

Some key highlights follow.

Improvement Levels Across China

After being impacted by the COVID-19 coronavirus in late 2019, much of Hubei province was placed on lockdown in late January, with many other Chinese cities and provinces subsequently impacted. China is in the process of attempting to return to what might be considered a new normal of manufacturing and supply chain activity.

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 across China.

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 overall average for Q1-2020 was 47.2, 4.5 percentage points below the average of Q4-2019, which reflects a considerable drop.

The latter government agency authored report which is more weighted toward state-owned manufacturers’ reported a Q1-2020 average value of 45.9, 4.3 percentage points below the average of Q4-2019. 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.

Last week, China reported that the country’s economy contracted by 9.8 percent from the previous quarter. The Q4-2019 quarter was previously reported at 6 percent GDP growth rate. The Wall Street Journal reported that the Q1 GDP value was actually higher than the 8.3 percent decline consensus forecast among 15 economists polled by the publication. March retail sales across China reportedly declined 16 percent from the year earlier period.

With many other nations still dealing with the effects of manufacturing and services restrictions, it remains unclear if China’s manufacturers will experience any significant pickup in product demand levels in the coming quarters with the exception of medical protective equipment, pharmaceutical and drug supply network needs.


Turning to other regions in this grouping, conditions reflected by the IHS Markit Vietnam Manufacturing PMI headlined a March 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. The country’s Q1-2020 average PMI of 47.2 was reflective of this country’s strong linkage with inbound supply networks across China, reflecting a 3.4 percentage drop from the average of Q4-2019.


The standout in this grouping was that of India. The IHS Markit India Manufacturing PMI was reported as 51.8 in March, a 2.7 percentage point drop of February’s value and headlined with international demand faltering amid the global pandemic. Ironically, the country’s January PMI reading was noted as the highest reported in nearly 8 years. India’s leaders have since initiated a country-wide lockdown affecting many manufacturers, and thus the COVID-19 impact will likely be evident in this quarter’s PMI activity levels.


Another concerning region was of Mexico. The IHS Markit Mexico Manufacturing PMI declined to a value of 46.9 in March, a 3.4 percentage drop from that of February. The report’s commentary indicated the new business within the manufacturing sector experienced its quickest fall since this survey’s inception nine years ago. With a significant presence in automotive, high tech and consumer products supply networks, the implications for Q2-2020 and beyond are concerning. The report authors indicated that panel participants were citing a pessimistic view in the 12-month business outlook, with “..many citing expectations for a prolonged economic downturn.”


Developed Economies

Our review of a grouping of regions which we group as Developed economies (Eurozone countries, Japan, Taiwan and the United States), noted that the overall Q1-2020 average PMI values of this grouping was 48.8, 0.5 percentage points below the average of Q4-2019. Without the context of the ongoing COVID-19 pandemic outbreak, that trend would imply a continuous of manufacturing contraction and subsequent manufacturing recession. With April, May and June activity levels expected to be reported in a far worse situation, the notions of both manufacturing and economic recession are far more prevalent.

The IHS Markit Eurozone Manufacturing PMI also contracted sharply, recording an average PMI value of 47.2 in Q1-2020 in March, a 0.8 percentage points decline from the average of Q4-2019. Many economists are now forecasting a likely condition of economic recession, especially with the implications of Italy, Spain, and the United Kingdom all being hit hard by the pandemic. Germany, the manufacturing powerhouse of Eurozone manufacturing in in capital equipment and production equipment manufacturing remains highly impacted with a March 2020 PMI value of 48.

The March 2020 Manufacturing ISM Report on Business, reflecting U.S. production and supply chain activity levels, reflected a Q1-2020 average PMI value of 50, the cusp of contraction. As noted in our earlier update, the report authors readily indicated that April’s and likely Q2-2020 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.

The Jibun Bank Japan Manufacturing PMI report values for Q1 reflected a 47.1 average PMI, a 1.6 percentage point drop from the average of Q4-2019. With product demand levels contracting prior to COVID-19, and with the peak of the virus still occurring across the country, Q2 activity levels are anticipated to drop substantially.


Reader Takeaway

Global-wide PMI indices for March as well as all of Q1-2020 indeed reinforce evidence of the significance of the simultaneous product demand, production and supply network disruption brought on by this ongoing pandemic,

The data portends what can likely be continued contraction over the coming months as major global regions try to regain some sense of post-COVID-19 semblance of a new normal.

When and until a global-wide vaccine  is developed and administered, the uncertainty remains unmistakable for multi-industry networks and supporting supply chain management teams.

As communicating in prior Supply Chain Matters commentaries  active monitoring, supplier assessment and 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.



Bob Ferrari

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