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Global Factory Activity: Conditions in U.S. Deteriorate While EU Enjoys Greater Momentum

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When it comes to manufacturing, the U.S. seems to be hitting some lows, while Europe enjoys above-average highs, and in China, things took a downward turn.

Looking at global manufacturing as a whole, J.P. Morgan said growth slipped to a six-month low in May. The Purchasing Managers’ Index (PMI) for global manufacturing came in at 52.6, down just a touch from 52.7 in April, with growth in emerging markets slowing to a level hovering just above stagnation. A PMI of 50 separates growth from contraction.

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

United States

Manufacturing activity in the U.S. has reached an eight-month low.

The PMI for May was 52.7, down only slightly from April’s 52.8.

May saw the weakest improvement in business conditions in the U.S. since September, with weaker new business growth and softer job creation dragging on the slight upturn in production volumes. Manufacturing output did increase for the twelfth month in a row, though manufacturers said subdued new business growth and more cautious inventory policies served as a break on production requirements. The rise in cost burdens slowed to a six-month low.

“Factories’ raw material prices meanwhile rose at a sharply reduced rate, which should at least help take pressure off profit margins and also feed through to weaker pressure on consumer price inflation,” Chris Williamson, chief business economist at IHS Markit said.

China

In China’s manufacturing sector, operating conditions have deteriorated for the first time in nearly a year.

The PMI for May was 49.6, indicating a slide into contraction territory after posting 50.3 in April.

Production rose in the month, but the pace of expansion was the weakest in 11 months. Output growth was softer as the increase in new orders was muted, an outcome manufacturers credited to subdued demand both at home and overseas. Employment continued on its downward trend and the rate of job shedding picked up for the third month in a row. Manufacturers lowered their purchasing activity and but said cost burdens declined for the first time in a year.

“The sub index of stocks of finished goods rebounded, indicating that companies have stopped actively restocking as inventories began to stack up,” Dr. Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said. “China’s manufacturing sector has come under greater pressure in May and the economy is clearly on a downward trajectory.”

Japan

Japan had a good May when it came to manufacturing.

The PMI was 53.1 in the month, up from April’s 52.7.

Faster increases in output volumes and new orders led to the greatest growth in manufacturing the company has seen since February. The rising production requirements also led companies to take on more workers. Purchasing activity increased, which pressured vendors and yielded stock shortages, and input costs continued to rise.

“As clients continue to demand high-value investment products, detailed data showed that the capital goods sector remained a key driver of growth, registering the strongest rises in output, new orders and employment over the month,” Paul Smith, senior economist at IHS Markit said.

U.K.

In the U.K., things are looking good in the manufacturing sector.

For May, the PMI was 56.7, down a bit from April’s three-year high of 57.3, though it marked the tenth straight month of improvement in operating conditions.

Manufacturing and production expanded at above average rates and export business saw a “solid” increase. Overseas demand increased thanks to a weak pound and manufacturers’ added efforts to promote in foreign markets. Production and new orders expanded, but so did input costs thanks to the weak pound and rising raw material prices.

“The survey also provided positive signs that the upturn may be sustained, as growth of new orders remained solid, backlogs of work rose at the quickest pace in six years and business optimism improved to a 20-month high,” said Rob Dobson, IHS Markit senior economist. “These underlying dynamics are proving to be a real boon for the manufacturing labor market, with May seeing jobs added at the fastest pace since mid-2014. On this basis, the sector should have sufficient momentum to see it through the uncertainty generated by the current unexpected general election and into the start of Brexit negotiations later in the quarter.”

Eurozone

Manufacturing in Europe has been expanding and momentum was only furthered last month.

The PMI came in at 57 in May, up from 56.7 in April and the highest in 73 months.

Growth in output and new orders accelerated to the best it’s been in roughly six years, and job creation was the strongest in the IHS Markit survey’s 20-year history. Growth was driven largely by stronger expansion in Germany. With all this expansion, capacity remains pressured, with backlogs of work rising for the 25th month in a row. These supply chain pressures also contributed to a further increase in input costs, though there are signs that price inflation is easing.

‘The fact that the upturn is being accompanied by such strong jobs growth sends a signal that increasing numbers of companies are moving away from a focus on cost cutting towards investing in expansion, underscoring the elevated levels of business optimism seen across the region,” IHS Markit’s Williamson said. “The record hiring adds to the sense that the upturn is looking more and more robust as each month goes by.”

Mexico

Manufacturing conditions in Mexico improved in May, though modestly, thanks to expansions in output, new orders and employment.

The PMI for May was 51.2, up from 50.7 in April.

Though marginal, the improvement was the second fastest since October last year. Rising production volumes helped boost manufacturing activity on the month, but weak domestic demand stalled production growth. Mexico’s export sales rose at the fastest pace since February.

“Input cost pressures remained intense in May, largely driven by higher imported raw material prices,” Tim Moore, senior economist at IHS Markit said. “Efforts to alleviate squeezed margins meant that factory gate price inflation climbed back up towards the five-year peak seen in February.”

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