Indices for global-wide manufacturing and supply chain activity for November 2018 point to both subdued activity levels and shifting of sourcing locations.
The closely watched J.P. Morgan Global Manufacturing PMI, produced by J.P. Morgan and IHS Markit in association with both ISM and IFPSM, and a broad indicator of global supply chain activity, posted a value of 52 for November 2018, essentially unchanged from that of October. The authors noted that October represented a 23-month low as growth remained below respective long-run averages.
Noted was that manufacturing conditions improved in the United States, Brazil and India. Declines were noted in indices related to Italy, Mexico, Poland, South Korea, Taiwan, Thailand and Malaysia.
The U.S. ISM November value of 59.3 climbed 1.6 percentage points from October, while approaching the prior Q1 three-month average of 59.7. The authors noted that New Orders, Production and Employment indices were each growing while Supplier Deliveries were slowing, adding to further backlogs. The New Orders index alone increased 4.7 percentage points, an indicator of continued momentum heading to the end of the year.
The Markit Eurozone PMI headline reflected the weakest growth of the region’s manufacturing economy since August of 2016, with a November value of 51.8. The weakest country was Italy at a value of 48.6, while the more robust indices were that of the Netherlands (56.1) and Austria (54.9).
Scanning other regional PMI indices, Supply Chain Matters noted potential signs of global sourcing shifts. The Nikkei Vietnam PMI rose from 53.9 in October to 56.5 in November. The report headline indicated that output had risen to a near-record pace: “to one of the greatest extents in the near eight-year survey history during November amid strong and accelerated expansions of output and new orders.”
Further noted was that new export business rose at the same marked pace as total new business.
The Nikkei India Manufacturing PMI reached a yearly high of 54 in November, a 0.9 percentage point increase from that of October, and now trending 3.1 percentage points higher than activity reported at the beginning of this year. The authors also pointed to heathier inflows of new orders, particularly from international markets, at the second fastest rate in over two years. New orders were driven by intermediate goods, followed by consumer and capital goods.
Contrast the above to the two indicators of manufacturing and supply chain activity across China. The Caixen China Manufacturing PMI, a refection more or private and smaller manufacturers, recorded a November value of 50.2, just about the same level as the prior three months. The authors have consistently pointed to reduced amount of export orders, likely brought about by current trade and tariff conflicts with the United States. Likewise, the official PMI reported by China’s Bureau of Statistics was noted as 50 in November, which is considered to be neutral in terms of growth. The government survey also noted weakness in new orders both from domestic and export sources. The New Orders index declined 0.4 percentage points to 50.4 while New Export Orders declined for the sixth straight month to a value of 47 in November.
Compared to the start of 2018, global manufacturing and supply chain activity levels have contracted at least two percentage points.
While the U.S. remains a shining star, indices among various emerging regions would indicate that other emerging countries are starting to benefit from sourcing shifts. That stated, China remains a powerhouse for its influence on global supply chain activity levels, and trade developments concerning the U.S. and other regions need to be continually monitored and evaluated very closely.
The news of a potential lull in China and U.S. tariff actions sent the stock market surging on Monday, with the Dow rallying more than 300 points. Today, the Dow dropped 800 points with added confusion as to tariff moratorium timelines, new information related to will lead the U.S. negotiating team for this next round, all coupled with a key moving average benchmark being crossed.
What seems ever more obvious is that 2019 will provide industry supply chains added challenges in product and component sourcing, coupled with continuing threats of tariffs. That will make sourcing decisions ever more challenging, and it would appear by the latest PMI indices that some companies are already initiating sourcing changes.
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