Manufacturers around the world just had their best month in years

Photo by Michael Dodge/Getty Images

After years of negative headlines, there’s finally some good news to report about the state of the global manufacturing sector.

The latest Markit-JP Morgan global manufacturing purchasing managers index (PMI) just hit the highest level seen in years.

The PMI rose to 52.7 in December, indicating that activity levels improved at the fastest pace seen since February 2014 at the end of last year.

Source: Markit

Like PMI readings for individual nations, this survey measures changes in activity levels across the global manufacturing sector from one month to the next. A reading above 50 indicates that activity levels improved, while a figure below 50 says that they deteriorated.

The only difference is that this survey is far more comprehensive in nature, capturing responses from more than 10,000 firms in 30 different nations, accounting for around 90% of all total global output, according to Markit.

It’s the closest thing to a real-time snapshot of what’s happening across the sector, and the news in December was clearly good on that front.

And, as seen in this table from Markit, the improvement was broad-based in nature with all sectors expanding in December, and all bar output prices registering a faster pace of expansion than that seen in November.

Source: Markit

It certainly adds to the case that the global economy was strengthening heading into 2017.

Markit said that production increased at the fastest pace in two-and-a-half years, underpinned by the steepest intake of new work since July 2014.

It also said that the pace of expansion in international trade volumes hit the highest levels seen in 27 months, with hiring across the sector growing at the fastest pace seen since March 2014.

Inflationary pressures were also evident with purchase prices and output charges rising at the fastest pace seen in over five years.

That’s important, as it suggests higher prices for raw materials are now being passed through to consumers, and will have an impact on the outlook for inflation and interest rates globally should the trend be maintained beyond the near-term.

Adding to the optimistic tone of the report, Markit said that the improvement was led by manufacturing heavyweights such as China, the US, Germany and Japan; yet another good sign for the health of the global economy.

“The PMI readings for the US and the eurozone rose to 21 and 68-month highs respectively, while the UK PMI registered its best level in two-and-a-half years,” the group wrote.

“The performance of the Asia region also improved, as PMI readings signalled growth in Japan, China, Taiwan, Vietnam, Philippines and Thailand.”

“The improvement in the headline PMI to a 34-month high rounds off a generally positive second half of the year for the global manufacturing sector,” said David Hensley, director of global economic coordination at JP Morgan.

“With rates of expansion in production and new order volumes having gathered pace during the latter part of 2016, the sector will start 2017 on a solid footing with positive momentum building and job creation accelerating.”

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