Global manufacturing activity is looking sick

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The global manufacturing sector continued to record lacklustre growth at the end of the third quarter, with rates of expansion in output and new orders edging lower and remaining marginal overall. As a result, global activity recorded its slowest monthly expansion in more than two years.

The latest J.P. Morgan Markit global manufacturing PMI fell to 50.6 in September, below the 50.7 level of August, to the lowest level since July 2013.

The survey, covering more than 10,000 firms in over 30 countries, is a diffusion index where a reading of 50 is deemed neutral, meaning there is no overall change in activity levels. Above 50 indicates an expansion in activity levels while a reading below 50 points to a contraction.

Of the survey’s six sub-components, output and new orders grew at a slower pace than August while new export orders, employment, input and output prices all contracted — hardly internals to get excited about.

Reflective of the uneven economic performance across the globe at present, individual nation’s PMIs varied widely in September.

“The US and the European Union (EU) remained positive contributors to global manufacturing growth in September,” Markit said.

“Within the EU, almost all of the nation’s covered by PMI surveys reported expansions (the sole exception being Greece). The strongest improvements were seen in the Czech Republic, Ireland and the Netherlands, while France returned to growth following contractions in the prior two months.”

While there was relative strength coming from the EU and US, that was not the case in Asia and most emerging markets.

“The Asia region remained one of the weaker points in the global manufacturing sector during September,” noted Markit.

“The China PMI slipped to a six-and-a-half year low of 47.2, while headline indices also signalled contractions in South Korea, Taiwan, Indonesia, Vietnam and Malaysia. Although Japan and India were plus points for the region, rates of expansion in these two nations slowed to three and seven-month lows respectively. Brazil and Greece, meanwhile, remained in severe downturns. Contractions were also signalled by the Russian, Canadian, Turkish and Swiss PMI indices.”

The full chart tracking individual nation’s PMI readings can be found below. Those for September are shown in blue while August’s figures are reported in grey.

Due to the slowdown in activity across the sector, the employment sub-component fell below the 50 level that separates expansion from contraction for the first time since July 2013.

Although a modest deceleration in activity compared to August, it is clear that the trend for global manufacturing is deteriorating for the moment. While services PMI readings have generally registered stronger performances in recent years, concerns about the outlook for global growth — already weak — may intensify should a similar declaration occur across the global services sector.

Having seen the Chinese services PMI plummet to a 14-month low of 50.5, many will be hoping that deterioration is not reflective of developments in other major nations. We’ll soon find out — a raft of services PMI’s will be released on Monday and Tuesday next week.

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