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Global Factory Activity: Manufacturing Reacts to Widespread Uncertainty

Changes in global relations and political leadership haven’t yet reflected real change in markets, but some nations are already feeling effects of the uncertainty.

While Vietnam is expected to continue its growth trajectory, with or without the Trans Pacific Partnership, the country’s manufacturing activity growth slowed in the month. For the U.S. on the other hand, confidence is high as manufacturers appear to be putting faith in President Trump’s promises to restore the domestic sector.

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

Vietnam

Vietnam still saw growth in its manufacturing sector, though expansion of output, new orders and employment eased in January. However IHS Markit said firms are confident output will increase over this year thanks to increased demand from international clients.

The index came in at 51.9, still above the 50 no-change mark but lower than December’s 52.4, and the weakest rate in three months.

The rate of input cost inflation is sharp and increasing faster than early averages for the year indicated as raw material prices rise and manufacturers increased their output prices as a result.

“It was a steady start to the year for the Vietnamese manufacturing sector, with growth of output, new orders and employment maintained,” Andrew Harker at IHS Markit said. “Although rates of expansion generally slowed, the ability of firms to secure a further solid increase in new work bodes well for coming months. IHS Markit is currently forecasting a solid 6.4% increase in GDP for 2017.”

China

China’s output and new orders increased in January, but the pace of growth slowed since December, though new export work increased at the fastest rate since September 2014.

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The PMI was 51 in January, down from December’s 47-month high 51.9.

Manufacturers have been trying to cut down costs, and the move has contributed to a decline in employment, but the increased client demand and lack of personnel sent backlogged work up. Growth in purchasing activity also slowed. Vendor performance also deteriorated because of issues with transportation, and average lead times increased at the quickest pace since February 2011. Manufacturers are also purchasing less inventory.

“Manufacturers appear to have become rather reluctant to restock. Input prices and output charges continued to rise rapidly, but at slower rates than in the previous month,” Dr. Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said. “The Chinese economy maintained stable growth in January. But the sub-indices showed that the current growth momentum may be hard to sustain. We must be very wary of downward pressures on the economy this year.”

Mexico

Mexico’s manufacturing growth is holding steady—at least for now. Output returned to expansion territory and new orders and employment ticked up a tad. But as political and economic uncertainty continues, namely surrounding U.S. president Donald Trump’s policies targeted at the country, Markit said there’s a record low level of confidence among manufacturers there.

The PMI registered 50.8 in January, up slightly from 50.2 in December, but the marginal rate of improvement was “noticeably lower” than in the survey’s history.

Mexico’s weak peso relative to the U.S. dollar also drove input costs up, and input price inflation to record highs.

“A weak peso meant that imported costs continued to rise markedly, helping to drive input costs up to the greatest degree in over five years,” Paul Smith, senior economist at IHS Markit said. “Inflation was subsequently pushed a little further up the supply chain with output charges rising at the fastest rate in 10 months.”

United States

U.S. manufacturers have started 2017 off strong as both new orders and output have seen growth since December. Stocks of finished goods experienced the steepest incline since 2007, according to Markit. Confidence among manufacturers here is the highest its been in almost a year, which Markit owes to a “continued upturn in domestic economic conditions.”

The PMI came in at 55 in January, up from 54.3 in December as overall business conditions improved.

Output growth increased at the fastest rate in 22 months, and those production volumes have been underpinned by improved demand and efforts to lower inventory levels at the start of the year.

“The U.S. manufacturing sector has started 2017 with strong momentum. Despite exports being subdued by the strong dollar, order books are growing at the fastest pace for over two years on the back of improved domestic demand,” IHS Markit chief business economist Chris Williamson, said.

India

India’s new orders and output increased in January, and greater production needs encouraged manufacturers to buy more inputs, though it didn’t generate jobs.

The PMI eked across the expansion line at 50.4 for the month, up from 49.6 in December.

Markit said anecdotal evidence points to a return to normal market conditions and an improvement in demand. Survey data did point to increasing pressure on capacity as backlogs rose at a quicker clip than in December. Though the rate of inflation was marginal, Indian manufacturers increased their selling prices for the eleventh month in a row.

“The Indian manufacturing economy recovered from the one-off downturn that hit the sector in December following the withdrawal of high-value banknotes,” IHS Markit economist Pollyanna De Lima said. “Improving confidence among firms bodes well for the outlook, with the expansion in manufacturing output likely to pick up pace in coming months.”

Turkey

Turkey’s new export orders increased at the start of the year, though those new orders and also output came in below the neutral 50 threshold.

The PMI for January was 48.7, up from 47.7 in December.

The volume of new export business did rise for the fourth time in six months, however, but purchasing activity among Turkish manufacturers have slowed, likely because the depreciation of the lira put pressure on input prices. Manufacturers’ output prices also rose at a higher pace in January than a month ago.

“Cost pressures remained intense, linked again to the weak currency,” senior economist at IHS Markit Trevor Balchin said.