This Supply Chain Matters blog features a capsule reviews of reported May-2020 global supply chain activity levels in an ongoing effort to provide readers broader perspective from a supply chain management lens as to what the COVID-19 planning and operational disruption is presenting to multi-industry supply chain management teams.

The May picture reflects the continuing disruption across global manufacturing and supply chain activity levels as various countries and regions continue to manage cascading effects of both product demand and supply disruptions brought about by the ongoing COVID-19 global pandemic.

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Some Easing of Contraction in Global Manufacturing Activity Levels

The J.P. Morgan Global Manufacturing PMI report, a composite index produced by J.P. Morgan and IHS Markit, in conjunction with ISM and IFPSM reported a value of 42.4 in May, an increase of 2.8 percentage points from levels reported for April 2020. That stated, the report’s narrative reinforces that rates of contraction in output, new orders and employment, while eased, were still among the strongest registered during the 22-year history of this survey.

The report narrative further notes: “Global manufacturing production fell for the fourth straight month in May. The downturn remained widespread, with substantial decreases across the consumer, intermediate and investment goods sub-industries.”

Of the 28 nations tracked in this index, all except China reflected manufacturing contraction.

 

Noted Highlights- Emerging Regions

Of the six Emerging regions that our research arm tends to monitor (China, India, Indonesia, Mexico, Thailand, Vietnam), the overall group average rose by 4 percentage points between April and May. That stated, many of the individual country indices remain at all-time lows.

PMI data reflected on China indicate somewhat of a return to pre-COVID manufacturing and supply chain activity levels. The Caixin China General Manufacturing PMI for May was reported as 50.7, a 1.3 percentage point increase from April’s reported activity levels. The official China government PMI compiled by the Bureau of Statistics reported at 50.6 value in May, making both reports reflect a growth condition.  The commentary associated with the Caixin report indicated that while manufacturing output continued expanding, overall demand levels improved only slightly. Noted in the narrative: “Manufacturers’ confidence in the economy for the next 12 months rose sharply, as restrictions were lifted as China’s domestic outbreak abated and its economy returned to normal, and some countries outside China started partially resuming work.

The Nikkei Vietnam Manufacturing PMI rose 10 percentage points in May to a value of 42.7, likely reflecting China’s manufacturing rebound. New Orders were reported as continuing an overall rate of contraction but easing from the levels seen last month.

The Nikkei India Manufacturing PMI rose from an astounding 27.4 in April to 30.8 in May, as the country remained in general lockdown conditions. The reported headline reflected a further sharp deterioration in business conditions.in May.

The Markit Mexico Manufacturing PMI reflected a value of 38.3 in May in what the panel noted as another sharp deterioration in business conditions brought about by many factories remaining closed as a result of coronavirus spread. New Orders placed with manufacturers reportedly fell drastically for the second month in a row, but slower than recorded in April.

 

Noted Highlights- Developed Regions

Of the four major Developed regions monitored (Eurozone, Japan, Taiwan and the United States), the overall average PMI increased 0.9 percentage points in May.

The headline for the IHS Eurozone Manufacturing PMI for May 2020 reflected that the manufacturing sector continued to contract sharply, although the index in May was 6 percentage points higher than April, at a value of 39.4. The authors noted that despite some easing, government restrictions designed to limit the spread of coronavirus disease continued to severely hamper the sector. Both France and Germany, the two manufacturing powerhouse countries had May indices of 40.6 for France and 38.6 for Germany. Italy reflecting a 14-point increase from April to May, was noted as the best performing country.  This region has a high concentration of aerospace, automotive and general manufacturing, each of which have been considerably impacted on the demand side. The rate of contraction and staffing level reductions has now extended to 13 successive months, reflecting a clear sign of manufacturing recession. Expressed was some optimism that the manufacturing downturn might have bottomed in April. The closely linked IHS Markit / CPIS UK Manufacturing PMI, reflecting on United Kingdom activity eased to a reported value of 40.7 in May as business shutdowns continued to drag down overall manufacturing. Output, New Orders and Employment all contracted as what was noted as the fastest rates during the 28-year survey history, albeit less sharply than in April.

There were mixed readings related to U.S. manufacturing and supply chain activity. The May 2020 Manufacturing ISM Report on Business reported a May value of 43.1, a 1.6 percentage point increase from that of April. The New Orders index registered an increase of 4.7 percentage points while the Production Index was noted as a 5.7 percentage point increase over April. As a contrast, the IHS Markit U.S. Manufacturing PMI reported a final PMI value of 39.8 for May. Since both reports are reportedly produced with similar panel data, the 3.3 percentage point difference for May is a bit concerning.

This latter report noted the second steepest deterioration in manufacturing operating conditions since April 2009, with lower new order volumes and reduced backlog, a far different tone. Further noted in the latter report were panelist fears of a slow recovery that would stymie demand, leading to further longer-term pessimism.

The associated IHS Markit Canada Manufacturing PMI for May was headlined as a sharp manufacturing downturn with a May value of 40.6, 7.6 percentage points above that of April. While declines in Output, New Orders and Employment were less severe than in April, current levels of contraction are noted as the second-fastest since this survey began over ten years ago.

From a North America trade alliance perspective, Canada at 40.6 and Mexico at 38.3 compare with the IHS U.S. value of 39.8 in May.

Finally, a further growing concern for supply chain management teams should be that of Japan. The au Jibun Bank Japan Manufacturing PMI slipped to a value of 38.4 in May, its lowest value since March 2009. According to this report, May survey data indicated a severe and accelerated drop in manufacturing production, with upwards of 55 percent of manufacturing companies recording lower output compared to April. Manufacturing activity was impacted by significantly reduced workloads and limited production capacity, brought about by the global pandemic. This index is now 22 percentage points down from the start of the year, and with so many high tech, automotive and optical intermediate components originating in this region, there should be cause for concern.

 

Summary Takeaways

While May’s PMI indices reflect some bounce back from April’s rather depressed numbers, there are obviously many challenges to overcome in the coming months as various countries attempt to bounce back from severe economic shocks of global wide disruption. While China is the obvious bright spot in terms of manufacturing activity, the concerns expressed regarding overall global demand levels are certainly merited.

As we have further highlighted, growing concerns regarding new escalated trade tensions among the two richest nations, the United States and China add to concerns among multi-industry supply chain management teams.

From the glass half-full perspective, May could have been far worse if the curves of global spread of the virus were not controlled as they were.

 

Bob Ferrari

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