Manufacturing activity across the globe ticked up in July as world markets seem to stabilize.
Generally a good indicator of economic conditions, the Markit Economics Purchasing Manager’s Index (PMI), for most major markets came in above the neutral 50-point level that separates expansion from contraction. The United Kingdom, on the other hand, saw manufacturing fall to a three-year low thanks to uncertainty in the country—namely Brexit.
Manufacturing growth in the U.S. hit an eight-month high in July, reaching 52.9 (up from 51.3 in June), driven by an expansion in new orders—mostly from domestic demand, though export sales expanded at the fastest pace since September 2014, according to Markit.
“The stronger manufacturing PMI survey data for July fuels hopes that the sector will act as less of a drag on the economy in the third quarter after a disappointing first half of the year,” Markit chief economist Chris Williamson said.
Production volumes rebounded, and July marked the second month in a row of higher output. Export sales increased modestly owed to promotional initiatives and entry into new markets. Job creation also picked up to its strongest pace since July last year.
“Having signaled the sector’s worst performance for over six years in the second quarter, contributing to a sluggishness in the economy that was later seen in the soft GDP numbers, the improvement in July suggests that manufacturers and exporters will have helped lift the economy at the start of the third quarter,” Williamson said.
For the first time since February last year, operating conditions in China’s manufacturing sector improved.
Output, new orders and buying activity all returned to growth in the month, though employment continued to fall at a steady pace, leading to outstanding business, Markit reported. Increased raw material costs, however, led to a rise in average input costs, which Chinese companies generally passed onto to clients in the form of higher output charges.
The Caixin Purchasing Managers’ Index for China in July was 50.6, up considerably from 48.6 in June. Overall new orders increased for the first time since March thanks to new products and better marketing. The growth came largely from domestic demand as exports sales declined in the month.
In response to the increased new work, manufacturers raised their production, reaching the fastest rate of expansion in the last two years, according to Caixin.
“This indicates that the Chinese economy has begun to show signs of stabilizing due to the gradual implementation of proactive fiscal policy,” Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said. “But the pressure on economic growth remains, and supportive fiscal and monetary policies must be continued.”
Output picked up in Vietnam too for July, but at a weaker pace.
Growth maintained in the manufacturing sector with the PMI coming in at 51.9, down from 52.6 in June. The reading may have been the weakest since March, but July was still the eighth consecutive month where business conditions in the sector improved.
Apart from output, new orders and employment were also down. And though the rate of cost inflation picked up, firms continued to lower their selling prices, contrary to China, as Vietnam is on a mission to improve competitiveness at all costs.
Despite the slowdown, new business increased at a solid pace as client demand improved, and new export orders expanded, too.
Output prices decreased for the second month in a row with competition heating up, but suppliers’ delivery times lengthened the most they have since January.
“There are two ways of looking at the latest PMI data for Vietnam. The glass half full approach would be to note that the sector continues to expand with new business increasing at a solid pace,” said Andrew Harker of Markit, who complied the survey. “On the other hand, a less positive view would highlight a loss of growth momentum with slower rises in output, new orders and employment recorded in July.”
New orders and output both hit a four-month high in India in July.
India’s PMI for the month was 51.8, up just a touch from June’s 51.7, boosted by domestic and foreign demand, total new business rose at the fastest pace since March and new export order growth hit a six-month high. The depreciation of the rupee helped bring in new business from abroad.
Input costs rose at the slowest pace in five months, though output prices increased at the quickest pace in three months. Pressure on manufacturers’ capacity is ongoing, however, as outstanding orders rose for the second straight month.
“India’s manufacturing economy is reviving at the beginning of the second half od 2016 after the slowdown seen in the April-June quarter, as growth of both production and new orders continues to strengthen in July,” Markit economist and author of the India report said. “Although output expanded at the fastest rate since March and backlog accumulation intensifies, business refrained from creating jobs. The ongoing muted trend for employment indicates that companies remain somewhat uncertain regarding the sustainability of the upturn.”
Manufacturing in the U.K. is facing a weak point at the start of the third quarter.
The PMI came in at 48.2 in July (it’s lowest level since February 2013), down from 52.4 in June as levels of production and new orders both contracted owed largely to increased business uncertainty in the country.
The decline in production was the country’s steepest since October 2012. Consumer goods production contracted, though there was a modest increase in new orders to consumer goods producers.
New export orders inched up for the second month in a row boosted by the pound’s depreciation and efforts by companies to get new contracts.
“The pace of contraction was the fastest since early-2013 amid increasingly widespread reports that business activity has been adversely affected by the EU referendum [also known as Brexit],” Markit senior economist Rob Dobson said. “The weakening order book trend and upswing in cost inflation point to further near-term pain for manufacturers. On that score, the weak numbers provide powerful arguments for swift policy action to avert the downturn becoming more embedded and help to hopefully play a part in restoring confidence and driving swift recovery.”