While markets have become excited about the acceleration in China’s industrial sector in recent months, helping to boost commodity prices and sentiment towards the outlook for the broader economy, that improvement was nowhere be seen across the global manufacturing sector in April. It stalled.
The latest JP Morgan-Markit global manufacturing purchasing manager’s index (PMI) fell 0.5 points to 50.1 in April, the second-lowest reading seen in the past five years.
The index measures changes in activity levels from one month to the next. Anything above 50 signals growth, while anything below that level means contraction -— so the higher the number the better.
“The growth rate of the global manufacturing sector ground to a near-standstill at the start of the second quarter,” said Markit following the release of the report overnight.
“Conditions remained muted in many domestic markets, while international trade flows continued to deteriorate. The level of new export business fell for the third straight month and to the greatest extent since September of last year.”
According to the group, activity levels in both emerging and developed markets weakened during the month, particularly in the latter.
“Developed nations saw their combined pace of output expansion slow to a three-year low. Production growth slipped to a 16-month low in the European Union, to a survey low in the US and declined at the fastest pace in two years in Japan,” they wrote.
Output levels in emerging economies actually declined, for the 10th time in the past 12 months.
“China stagnated, growth slowed in India and Indonesia, while Brazil, Russia and Malaysia recorded substantial downturns in production.”
As a consequence of the slowdown in output, manufacturers shed staff for a third straight month, this time at the fastest pace seen since June 2013.
“The US saw only a negligible gain in staffing levels, while employment in China fell at the second-fastest pace since January 2009.”
Not exactly confidence-building stuff, right?
The one piece of good news came from developments in input and output prices which both expanded after falling in recent months. However, much of the strength was concentrated in emerging markets, likely China, raising concerns over the sustainability of inflationary spike.
“A marked disparity was evident between the trends seen in developed and emerging nations,” noted Markit. “While prices tended to fall in the developed world, emerging markets generally registered solid rates of inflation.”
Despite the dire April report, David Hensley, director of global economic coordination at JP Morgan, remains optimistic on the outlook for the sector.
“The latest PMI data indicate global manufacturing output is growing at an anaemic pace, similar to the past year,” said Hensley.
“What is notable is the sharp drop in the PMI finished goods inventory index. Once manufacturers have aligned inventories with sales, faster production gains should ensue.”
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