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Global Factory Activity: China and US Manufacturing Growth Loses Steam

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As global economic uncertainty starts to abate a bit, manufacturing conditions are either returning to stable or starting to lose steam.

In China, growth in the manufacturing sector slowed on weak new export sales, and when it came to the U.S., though things looked good in the first quarter, analysts have unfavorable expectations for the sector in the second quarter.

Here’s a look at March PMI’s for key apparel sourcing countries.

China

China’s manufacturing sector is still experiencing modest growth, but that growth has slowed since February.

The PMI for March was 51.2, down from 51.7 in February.

New export sales increased at the weakest pace in three months, factories shed jobs and cautionary attitudes resulted in decreases of inputs and finished goods. Optimism about the one-year business outlook slipped since February but remains strong overall.

Factories still increased their purchasing activity in the month in keeping with production. The time it took for inputs to be delivered continues to lengthen, which isn’t ideal at a time when shortening lead times is on everyone’s agenda. The rate of input price inflation continued to slow, though it’s still sharp overall, and output charges increased but at the slowest pace in six months.

“The Chinese manufacturing economy continued to improve, but signs of a weakening have started to emerge ahead of the second quarter,” Dr. Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said. “Downward pressure may further increase.”

Vietnam

Output growth in Vietnam’s manufacturing sector quickened to a 22-month high in March.

PMI for the month was 54.6, just slightly up from 54.2 in February.

Client demand improved, which brought new orders up to their fastest rate of growth so far this year. As such, backlogs of work increased for the third consecutive month, but a faster rise in production kept outstanding work from accumulating. Input cost increased at the fastest pace since May 2011, owed to rising raw material costs, higher oil prices and weak currency.

“The positive PMI data for March completes the strongest quarter that we have seen since the survey began in early-2011. Particularly pleasing in the latest month was a near-record increase in employment as companies maintained optimism that workloads will continue to expand in the near-term at least,” IHS Markit’s Andrew Harker said. “The manufacturing industry therefore looks set to continue to be a key driver of GDP growth in the first quarter and hopefully throughout 2017, for which IHS Markit forecasts a rise of 6.4%.”

United States

Recent efforts to focus on U.S. manufacturing don’t appear to have set in yet. Manufacturing growth slowed to a six-month low in March.

The PMI for the month fell from 54.2 in February to 53.3 in March.

Conditions are still improving but the pace has slowed.

“The loss of momentum reflected softer rates of output and new order growth, alongside a slower rise in payroll numbers,” according to the IHS Markit report.”Manufacturers sought to adjust their inventory strategies in response to more subdued sales growth, with stocks of finished goods reduced for the first time in six months.”

Higher raw material prices brought on the strongest rate of cost inflation since September 2014, and factories’ costs increased at the fastest pace in nearly three years. Production rose at the slowest rate in the last six months, though conditions are still improved from summer 2016. Manufacturers surveyed noted that the improving domestic economic backdrop helped boost workloads in March.

“The post-election resurgence of the manufacturing sector seen late last year is showing signs of losing steam. Output growth slowed to a six-month low in March, optimism about the outlook has waned and hiring has slowed accordingly,” IHS Markit chief business economist Chris Williamson said. “While the survey data suggest that the goods producing sector enjoyed a relatively good first quarter on the whole, the loss of momentum seen in February and March bodes ill for the second quarter.”

U.K.

U.K. manufacturing production and new orders continued to expand in March, albeit at a lower pace than recent highs.

The PMI for March slid to 54.2 from 54.5 in February.

New business inflows were good in the month, partly owed to further growth in foreign demand, which led business optimism to reach a 10-month high. Output charge inflation inched up, moving back toward January’s near-record high because of rising raw material costs. Input costs increased at one of the quickest rates in the survey’s nearly six-year history.

“Between the EU referendum in June 2017 and the triggering of Article 50 last week [PMI released April 3], British manufacturers have completed a remarkable return to confidence. However, with trouble brewing at the base of their supply chains, manufacturers must be wary of over confidence,” said Duncan Brock, director of customer relationships at the Chartered Institute of Procurement and Supply.” Apart from being wary, Brock said, “The beginning of formal negotiations with the EU has failed to dampen the sense of optimism and manufacturers expect production to continue growing in the year ahead.”

Eurozone

Manufacturing in the Eurozone reached a nearly six-year high thanks to stronger growth in Germany, Italy and France.

The PMI for March hit a 71-month record of 56.2 in March, up from 55.4 in February.

Expansion in production and new orders reached a six-year high as companies reported more new work from domestic and export clients. The stronger inflows are likely a result of improving global market conditions and the relatively weak euro exchange rate. The problem has been, however, that suppliers are having a hard time meeting the surging demand.

“Eurozone manufacturing is clearly enjoying a sweet spell as we move into spring, but it is also suffering growing pains in the form of supply delays and rising costs,” Williamson said. “These delays send a warning signal about rising inflationary pressures, as busy suppliers are often able to hike prices. Prices charged for goods leaving the factory gate are consequently rising at the fastest rate since mid-2011, despite March seeing a drop in the price of oil and a stronger euro against the U.S. dollar, as supplier price hikes are passed on to customers.”

Turkey

Conditions in Turkey’s manufacturing sector have improved, and production is up at the fastest rate in more than three years.

The manufacturing PMI for Turkey in March was 52.3, up from 49.7 in February, and now well out of the sub-50 mark that indicates contraction instead of growth.

New business volume rose at the fastest rate since February 2014, which led to a faster increase in output. In response to the growth, manufacturers increased employment and bought more raw materials. Input price inflation remained sharp, though it’s now at a five-month low.

“The Turkish PMI rose sharply in March to signal the strongest overall improvement of the Turkish manufacturing sector in over three years,” IHS Markit senior economist Trevor Balchin said. “Output and jobs increased at stronger rates as new business growth resumed. Price pressures also showed signs of easing during the month.”

Mexico

Manufacturing in Mexico is on an upswing and new orders increased in March at the fastest pace since September last year. As such, production volumes and input buying expanded.

The PMI for March was 51.5, up from 50.6 in February and the highest reading since October.

Manufacturers said client demand has improved as new orders were up despite a weaker contribution from export sales. Though things are rebounding, positive sentiments are waning in the face of continued uncertainty about the economic outlook.

“March’s survey data reveals that subdued business conditions persisted in Mexico’s manufacturing sector, but there were signs of a recovery from the three-year low seen at the end of 2016,” IHS Markit senior economist Tim Moore said. “However, heightened uncertainty about the domestic economic outlook weighed on staff hiring in March, with jobs growth easing to its weakest for just over two-and-a-half years. Strong input price inflation meanwhile continued to place a squeeze on margins, with manufacturers mainly citing pressures from rising transportation and imported raw material costs.”

India

India’s manufacturing entered its third straight month of improvement in March.

PMI for the month reached 52.5—a five-month high—up from 50.7 in February.

Incoming new orders expanded at a stronger pace thanks to strengthening demand conditions, which led to quicker increased in production and input purchasing. Both input and output charges continued to rise, but inflation rates softened from February.

“The favorable demand environment was supported by relatively muted inflationary pressures. Given that input costs rose at a softer pace, a whopping 96 percent of goods producers kept their selling prices unchanged over the month,” IHS economist Pollyanna De Lima said. “Looking ahead, production volumes are likely to rise further as businesses will seek to replenish their stocks. Indeed, we saw a marked drop in inventories of finished items, alongside a stronger degree of confidence towards the year-ahead outlook for output.”

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