Global manufacturing is staging a comeback

MARK RALSTON / AFP / Getty Images

Conditions for the global manufacturing sector are clearly improving, signalling a likely pickup in broader economic activity worldwide.

As this chart of the JP Morgan-IHS Markit global manufacturing purchasing managers index (PMI) shows, growth across the sector continues to strengthen, improving at rate not seen in several years.

It came in at 52.7 in January, unchanged from December, leaving it sitting at the equal-highest level seen in nearly three years.

The PMI measures changes in global manufacturing activity levels from one month to the next, with a sore of 50 indicating that activity levels were unchanged from a month earlier. Anything above 50, as was the case in January, suggests that activity levels are improving.

Source: IHS Markit

Activity levels have now improved for 51 consecutive months.

That’s good news for the broader global economy, particularly as the strength right now is broad-based in nature, rather than isolated to individual nations as has so often been the case in the past.

“Among the larger industrial nations for which data were available, faster rates of expansion were signalled for the US, the euro area and the UK,” IHS Markit said.

Some big manufacturing nations, and although the performance from China is not captured due to the Lunar New Year holiday, if the government’s manufacturing PMI released on Wednesday is anything to go by (which isn’t included in the Markit survey), it suggests that activity levels in the world’s largest manufacturing nation are also continuing to improve.

Adding to evidence that global economic activity is picking up, IHS Markit said that new orders and new exports both grew at a faster pace in January, signalling that demand continues to firm.

Indeed, the new orders sub-index — a lead indicator on future activity levels — hit a near three-year high last month.

“Part of the increase in demand reflected stronger international trade flows, as new export orders rose at the quickest pace since September 2014,” said IHS Markit.

Source: IHS Markit

David Hensley, director of global economic coordination at JP Morgan, agrees, suggesting that “with backlogs of work rising further and business confidence increasing, the sector looks firmly set to build on this solid start to the new year during the coming months”.

While there are are number of risks that have the potential to derail the recovery in the sector, particularly surrounding geopolitics, for the moment, things are looking more than alright.

The PMI survey takes in responses from over 12,000 firms from more than 40 individual nations, capturing around 95% of total global manufacturing output. In other words, it’s worth listening to.

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