Supply Chain Matters provides highlights and added insights on reported September and Q3 2023 global and regional production and supply chain PMI indices.
With the closing of the third quarter, the numbers once again signal added contraction in global manufacturing output as product demand levels weaken. The three specific regions of concern remain the Eurozone, United Kingdom, along with Taiwan.
Looking ahead to the final quarter, the various published leading indicator indices such as new orders or backlog of orders imply that contractionary conditions are not likely to change in the final quarter.
Global Wide Manufacturing Activity Levels
Global manufacturing activity as reported by the J.P. Morgan Global Manufacturing PMI®, compiled by S&P Global in association with ISM and IFPSM, provided a banner headline of weaker intakes of new orders leading to reduced production output. Reportedly, destocking activities increased with finished product and raw materials inventories decreasing by the end of the quarter.
The reported September PMI reported value 49.1 was relatively unchanged from the 49.0 value reported for August. The average of this index for Q3 was 48.9, reflecting a 0.4 percentage point drop from the average of Q2, and a 0.6 percentage point drop from the average of Q1-2023.
This index has now remained below the 50.0 mark for a reported thirteen consecutive months, what economists would label as a manufacturing recession.
The report’s authors indicated that five sub-indices, output, new orders, manufacturing employment, purchasing stocks and suppliers’ delivery times were collectively at levels of deterioration.
The regions reported as having the most declines in production volumes were noted as Brazil, Canada, Japan, and the United Kingdom.
Key Highlights in Regional PMI Reporting
Factory Orders Continued to Plummet Across the Eurozone
The HCOB Eurozone Manufacturing PMI® report for September was again headlined with plummeting new orders rates and rapidly depleting backlogs of work. The report authors especially cited new order declines and: “at a pace that has rarely been surpassed since the survey began in 1997.”
The reported September value was 43.4, a 0.4 percentage point decline from the August value of 43.5, and a 0.7 percentage point drop from the July index.
The 43.2 average of the three months of Q3, declined 1.5 percentage points from the average of Q2, and a significant 4.8 percentage point drop from the average of Q1.
Reportedly, with the exception of Greece, all other EU countries registered PMI declines, with Germany and Austria having the fastest rates of production declines. Further reported was that added manufacturing headcount reductions continued in September: “with euro area factory employment falling at the quickest pace in almost three years.”
Commenting specifically on the September and Q3 Eurozone PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank indicated in-part:
“The Output PMI was well under 50 for the entire third quarter, so we are feeling pretty certain that the recession in manufacturing continued during this period. We probably won’t see things picking up until we ring in the new year, but there are reasons to believe that the bottom of the hard-to-pin-down stocking cycle has been reached.”
Specifically related the Germany, the HCOB Germany Manufacturing PMI® registered a September value of 39.6 for September and headlined with the sharpest decline in output levels since May 2020, the height of the Covid-19 pandemic.
In May of this year, Supply Chain Matters highlighted that the German economy had entered both economic and manufacturing recession. In early September, we updated readers regarding the growing concerns centered specifically on Germany as the past powerhouse of EU production and global supply chain growth and on a viewpoint from an economist that observed that “the darkest hours come just before dawn.” The open question is when the new dawn occurs.
United Kingdom
In the dependent region of the United Kingdom, the S&P Global/CIPS UK Manufacturing PMI® rose to a value of 44.3 in September compared to the 43.0 reported for August. Even with this increase, the report authors noted the September value was “the weakest seen over the past 14 years.” The latest report observed that at the end of Q3, the downturn in UK manufacturers continued, with output, new orders and employment collectively declining.
Reported Easing Of Manufacturing Downturn in Taiwan
The September S&P Global Taiwan Manufacturing PMI® report was headlined with Taiwan’s manufacturing sector downturn now moderating by the end of Q3. Manufacturers reportedly signaled: “the softest reductions in both output and total new work since April, though declines remained marked overall.”
The reported September PMI value rose to 46.4 from the August PMI value of 44.3, was slightly higher than the 44.1 reported for July.
As we have shared in many prior Taiwan PMI highlights, this country’s production cycles can be cyclical and somewhat parallel Apple’s new iPhone product release announcement schedules that come in September or October, when cyclical production volume ramp-up occurs among various Apple suppliers.
Moderation in Contraction Levels for U.S. Manufacturers
Two indices of U.S. manufacturing activity levels reflected moderation in production contraction levels in September.
The S&P Global US Manufacturing PMI® September report was headlined with output returning to growth but prices rising at an increased rate. The September value of 49.8 was 1.9 percentage points higher than the August value of 47.9, and 0.8 percentage points higher than the July value of 49.0.
Firms reportedly attributed the upturn in production to companies increasing workforce and capacity.
Commenting on the September data, and specifically on outlook, Chris Williamson, Chief Economist at S&P Global Market Intelligence noted in part:
“Manufacturers’ expectations of future output have jumped to their highest for nearly one and a half years, supply conditions continue to improve, and the rate of order book decline has moderated considerably in recent months, in part due to fewer producers and customers reporting deliberate cost-focused inventory reductions. ”
The Manufacturing ISM Report on Business® reported a September value of 49, 1.6 percentage points higher than the August value of 47.6, and 2.6 percentage points above the July PMI value of 46.4. The Q3 average PMI value of 47.7 was one percentage point higher than the average of Q2.
Commenting on the September data, Timothy R. Fiore, Chair of the Institute of Supply Management® Manufacturing Survey Committee, noted in-part:
“Demand remains soft but production execution improved compared to August as, panelists’ companies prepared for the fourth quarter and the close of the fiscal year. Suppliers continue to have capacity. Seventy one percent of manufacturing gross domestic product (GDP) contracted in September, up from 62 percent in August. More importantly, the share of sector GDP registering a composite PMI calculation at or below 45 percent- a good barometer in overall manufacturing weakness- was 6 percent in September, compared to 15 percent in August and 25 percent in July, a clear positive.”
India’s Manufacturing Sector Remains Strong
Overall manufacturing activity across India moderated somewhat during September, but a sharp resorted rise in new orders reportedly fueled sustained expansion in output, purchasing and manufacturing employment.
The S&P Global India Manufacturing PMI® however declined to a value of 57.5 in September, reflecting a 1.1 percentage points decline from the 58.6 reported in August, but only 0.2 percentage point drop compared to the 57.7 reported for July.
The September report indicated that where an expansion in orders was reported, survey participants cited favorable demand trends and positive market dynamics. On the cost of inbound goods side, the rate of price inflation reportedly receded to its lowest mark in over three years.
A Rebound in China’s Production Activity Levels
The two recognized indices of PMI within China indicate a rebound in production activity in the final month of Q3.
The Caixen China General Manufacturing PMI®, a reflection of either private or SMB businesses was headlined with operating conditions improving slightly in September for the second consecutive month. Specifically noted: “Production expanded at the strongest rate in four months amid a further modest increase in new business.”
The reported September value of 50.6 slipped 0.4 percentage points from the 51.0 value reported for August but represented a 1.4 percentage point increase over the July value of 49.2. The latest report pointed to back-to-back increases in output during September with a rate of growth improving to a four-month high.
Commenting on the September data, Dr. Wang Zhe, Senior Economist at Caixen Insight Group noted in part:
“Supply expanded as production picked up pace in September, after being impacted by the hot weather, while market demand increased steadily. Output and total new orders both expanded for the second straight month. But overseas demand remained weak, with the gauge of new export orders remaining below 50.”
China’s official PMI index compiled by country’s National Bureau of Statistics (NBS) and weighted toward state-owned manufacturers, expanded for the first time in six months. The reported September value of 50.2 rose 0.5 percentage points from the 49.7 reported for August, and 0.9 percentage points above the 49.3 reported for July.
Zhao Qinghe, a senior NBS official, indicated in a statement that “positive factors in economic performance increased in September as policies have started to take effect.” But he further cautioned that headwinds could hamper a continued rebound in the manufacturing sector.
Within the official manufacturing PMI, the new orders subindex rose to 50.5 in September from 50.2 a month earlier, while the new export orders subindex improved slightly to 47.8 from 46.7 in the previous month. The non-manufacturing PMI rose to 51.7 in September from 51.0 in August after the index moderated for five consecutive months amid an overall economic slowdown.
Asian based business media reports hint that China’s economy is showing some signs of recovery, but concerns remain relative to this country’s real estate sector. China’s Evergrande Group, one of the largest real estate developers continues to struggle in meeting its debt obligations and the company’s chairman is now under investigation for alleged criminal wrongdoing. Local governments remain challenged with heavy debt levels.
The Wall Street Journal reported in late September (Paid subscription) that China has become a much tougher place to make money for U.S. companies according to new survey data from the U.S.-China Business Council. Reportedly in the latest survey, 43 percent of respondents indicated that China’s business environment had deteriorated in the past 12 months. Further cited in the report was a June survey by the American Chamber of Commerce in Shanghai that indicated just over a half of respondents expressing optimism about their five year outlook in China, reportedly the lowest level since this survey began in 1999.
Added Supply Chain Matters Insights and Perspectives
In our summary of June and Q2 PMI reporting, we indicated to readers and clients that we sensed by reviewing leading indicator PMI sub-indexes that added contraction was in-store for the current quarter, and perhaps for the final quarter.
The now reported September and Q3 PMI data continues to reinforce a period of muted product demand levels among multiple industry sectors.
Leading indicator indexes reflecting tepid new order rates and souring business optimism continue and will more than likely extend into the final three months of 2023.
Remaining on a positive note is again continued evidence that global wide industry chain volatility levels have subsided to pre-pandemic levels, including predictable supplier lead times.
The S&P Global PMI™ Commodity Price and Supply Indicators report for September reinforced that component supply shortages eased to their lowest levels since January 2020 and that global price pressures fell for the fifth consecutive month.
Once again, the implication for multi-industry businesses, their procurement sourcing and supply chain teams remains a diligent assessment of the global and domestic supply chain landscape relative to demand and supply trending, along with the various business and supply chain downside or upside risk factors.
As the final quarter approaches, businesses and their associated supply chain management teams must scrutinize their expected 2024 product demand and supply needs. This exercise will more than likely require a good amount of scenario based or what-if planning approaches given the continued high level of risk factors across global supply networks.
Bob Ferrari
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