The latest batch of PMI reports suggest the global economy is slowing

SAEED KHAN / AFP / Getty Images
  • The global manufacturing sector grew at the slowest pace in 11 months in June.
  • Growth in new orders — both from domestic and offshore clients — was particularly weak.
  • Inflationary pressures across the sector hit multi-year highs, reflecting ongoing strength in commodity prices.

The latest batch of manufacturing PMI reports are now in, and the news isn’t all that good for the global economy.

While activity levels continued to improve in June, they did so at the slowest pace in nearly a year, adding to growing evidence that momentum in the global economy is slowing.

The JP Morgan-IHS Markit Global Manufacturing PMI fell to an 11-month low of 53.0 in June, continuing to moderate from the multi-year high seen late last year.

IHS Markit

For those not familiar with PMIs, a reading above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating. The distance away from 50 indicating how quickly activity levels are expanding or contracting.

So activity levels are still improving, just not to the degree seen in late 2017 and early 2018.

IHS Markit said the moderation was driven by a softening in new orders, a lead indicator on activity levels in the future.

“World manufacturing production rose at the slowest pace since July last year, as growth of new order inflows eased to a 19-month low,” the group said.

“This was partly the result of subdued international trade flows, as new export orders rose only slightly and to the weakest extent during the current 23-month sequence of expansion.

“Developed markets saw a modest increase in new export business on average, whereas emerging nations registered a decline for the third straight month.”

IHS Markit

Along with escalating trade tensions between the United States and China and tighter monetary policy settings from an increasing number of central banks, higher prices as a result of increased input costs may have also contributed to the slowdown in global demand last month.

“Price pressures increased again… with both input costs and output charges rising at faster rates,” IHS Markit said.

“Purchase price inflation was the joint-highest in the past seven years, while the increase in charges was the steepest since May 2011.”

These undoubtedly reflect second-round effects from stronger commodity prices, especially crude, over the past couple of years, and suggest inflationary pressures from the global industrial sector are now spilling over into the broader economy.

Reflecting the softening in demand, optimism among manufacturers towards the year ahead slipped to a 19-month low of 61.9.

Still buoyant, but declining nonetheless, reflecting increased nerves ahead of the introduction of proposed US tariffs on Chinese imported goods later this week.

The global manufacturing PMI surveys over 12,000 purchasing executives from over 40 countries, accounting for an estimated 95% of global manufacturing output.

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