The various major July 2018 PMI indices reflecting global and major regional manufacturing and supply chain activity have published and provide further indication of what looks to be a global trade induced slowdown in multi-industry supply chain momentum. Global Trade
The J.P. Morgan Global Manufacturing PMI produced by J.P. Morgan and IHS Markit reported a value of 52.7 in July, down from a 53.0 value reported for June. The authors noted that this was the lowest value in one year. Further cited was weaker growth in consumer and investment goods industries as rates of expansion eased for both production and new orders. Growth was reported as subdued across Asia, including China and Japan. The Eurozone was indicated as a bright spot as was the United States.
Of significance for global trade, the authors indicated a subdued picture for international trade flows. The statement that caught this Editor’s attention was:
The pace of increase in new export orders eased to near-stagnation and was the weakest during the current two-year sequence of expansion.
That, from our lens, is an indicator that global trade flows are now being impacted.
Reviewing other major PMI indices, the IHS Markit Eurozone Manufacturing PMI had a value of 55.1 in July, 0.2 percentage points above the 18-month low reported in June. Here again, new export order growth was reported at near two-year lows amid concerns for tariffs, while optimism for the future was noted at the lowest levels seen over the past two years.
The Caixin China General Manufacturing PMI fell again in July, to a value of 50.8, and noted as the slowest improvement in the sector since November 2017. New export business was reported as declining at the quickest rate in just over two years. Likewise, China’s official PMI reported by the government fell to a five-month low in July, and slightly lower in expectations. The import index slipped to a 23-month low while the new export order index held steady because of a near 8 percent devaluation of the nation’s currency.
The July 2018 Manufacturing ISM Report on Business, a reflection of U.S. supply chain activity levels, indicated a PMI value of 58.1, 2.1 percentage points below what was reported in June. Many key indices that reflect future growth momentum turned downward. The New Orders index decreased 3.3 percentage points, the Production Index fell by 3.8 percentage points, and the New Export Orders index fell by one percentage point. Another area that should be monitored and watched is the Inventories index which grew by 2.5 percentage points, reflecting added unsold inventories. It could also reflect decisions to accelerate buying of goods to avoid the imposition of higher tariffs during the remainder of this year.  An ongoing concern remains the Supplier Deliveries index, which dropped by a hefty 6.1 percentage points in July, reflecting additional supplier slowdowns in expected inventory delivery.
While the majority of manufacturing industries tracked indicated continued growth in July, many of the select panelist statements cited the threat tariffs as either an ongoing concern, a cause for ongoing contingency planning, a cause of material movement disruption or a direct impact on export orders.
Multi-Industry Supply Chain Takeaway
Thus, industry supply chains now have two full months of data reinforcing that building trade tensions and increased tariffs are impacting prior global momentum levels.  That could be good, or not so good news. Good from the perspective that oversold manufacturing capacity could ease, allowing businesses to catch-up with order backlogs. Not so good, in the notions of higher inbound materials, manufacturing and finished product costs or pricing.
Industry supply chains have often shown the ability to pivot rather quickly when the economic environment suddenly shifts. The difference this time is that trade tensions extend not only beyond China, Canada, Mexico, and the United States, but the Eurozone as well. While a potential truce or easing of tensions between the U.S. and the European region may or may not be forthcoming, contingency options are becoming limited, which implies higher prices and higher costs. That is not a good formula for specific industry supply chain networks.
Bob Ferrari
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