Global Manufacturing Output Growth Declines amid Sluggish Demand Conditions

Global Manufacturing Output Growth Declines amid Sluggish Demand Conditions

Global manufacturing sector health deteriorated in August 2022 as output fell across consumer, intermediate and investment goods sectors, with new order intakes declining for the second consecutive month. However, business optimism rose to a three-month high and recovered from July’s 26-month low. The cyclically sensitive new orders to inventories of finished goods ratio fell to 0.95 – its lowest level since May 2020.

The Global Manufacturing Purchasing Managers’ Index (PMI) was registered at 50.3 in August 2022, compared to 51.1 in July 2022, a 26-month low. Global manufacturing output contracted in August as only 10 out of the 30 nations surveyed in August registered increases in production, the majority of which only signalled minor growth (including China, Brazil, Spain, and Australia). The United States, the Euro area, Japan, and the United Kingdom were among the greater economies to see contractions. The manufacturing activity saw lower production volumes led by a drop in global demand for manufactured goods with the volume of export orders down for six consecutive months. Out of all the countries, only India and Australia signalled an improvement in foreign demand in August.

In August 2022, the stocks of finished goods rose, and backlogs of work contracted for two months in a row while the rate of jobs growth remained only marginal. New hiring was made in the US, the Euro area, and Japan, whereas China registered a decrease. Rates of input cost and output price inflation continued to ease in August and were marked the least since the beginning of 2021. However, cost pressures remained above average due to several headwinds such as supply chain difficulties, raw material shortages, and elevated prices for key inputs such as energy and electronics.

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United States

US manufacturing PMI survey for August 2022 signalled subdued overall health conditions in the manufacturing sector growth as output and new order intakes both declined amid weak demand in the manufacturing sector due to inflation and economic uncertainty. Meanwhile, business optimism rose to a three-month high in anticipation of an uptick in demand, but it remained below average.

The US Manufacturing PMI marked 51.5 in August, down from 52.2 in July, the lowest since July 2020, indicating low output growth across the US manufacturing sector. In response to weak demand conditions, goods’ producers indicated a decline in production. Some firms also witnessed a decline in output due to raw materials shortage and delivery delays caused by supply chain disruptions. However, falling demand for manufactured goods has taken some pressure off supply chains and helped shift some of the pricing power away from sellers toward buyers.

Supply chain pressures eased with an improvement in lead times which were recorded least severe since October 2020. With the easing of the supply chain, cost pressures also moderated, with input prices increasing at the slowest pace since the start of 2021. Selling prices rose at the weakest rate in 18 months.

The pace of rise in inflation in August 2022 was the slowest in 18 months, however, it remained higher than average. This rise in prices was attributed to hikes in transportation cost, fuel and metals prices and raw material shortages. Meanwhile, employment rose at the second-slowest rate in over two years as weak new order inflows led firms to delay hiring new employees. Backlogs of work also grew at a softer pace in August due to lack of workers and low hiring.

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Eurozone manufacturing PMI survey for August 2022 signalled fragility in the manufacturing sector growth as output and new orders inflows declined sharply. High inflation in the Eurozone led to weak demand conditions reflecting deteriorating purchasing power across Europe. Nevertheless, business sentiments edged up slightly from July’s 26-month low, but they remained at a historically subdued level.

The Eurozone PMI fell beneath 50 for two months in a row and stood at 49.6 in August, down from 49.8 in July, signalling deteriorating operating conditions in the Eurozone manufacturing sector with the index falling to its lowest mark since June 2020. The war in Ukraine, rising raw material and energy prices, supply chain disruptions, and heightened uncertainty have resulted in subdued demand for goods and restrained manufacturing output growth. Amongst the EU nations, the Netherlands was the top performer in August with a PMI value of 52.6, while other countries like Ireland, France, Spain, Germany, Austria, Greece, and Italy came next with PMI values of 51.1, 50.6, 49.9, 49.1, 48.8, 48.8 and 48.0, respectively.

Eurozone manufacturing output fell for the third successive month and was the strongest since May 2020. Production volumes and new export sales fell amid lower new order intakes and raw material shortages. Demand continued to decline in August and registered a fourth consecutive monthly fall.

Amid falling input demand, the pressure on firms continued to ease, as the seasonally adjusted Suppliers’ Delivery Times Index rose for the fifth month in a row to its highest since October 2020. Meanwhile, vendor performance continued to deteriorate due to logistics issues and shortages of certain raw materials. Stocks of finished goods rose at the fastest rate on record due to a lack of incoming new work.

In August 2022, inflationary pressures cooled off as both input cost and output prices rose softly, however, they remained historically sharp overall. Backlogs of work reduced for the third month in a row with an increase in the level of employment.

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Manufacturing sector growth in India was consistent with a strong improvement in operating conditions in August 2022 amid an increase in both new orders intake and production volume. Output continued to grow and was recorded at a nine-month high. Business sentiment was recorded high with the degree of optimism at its highest in six years. Predictions of stronger sales, new enquiries and marketing efforts all boosted the confidence of the firms.

The manufacturing PMI of India was slightly changed from July’s reading of 56.4, posting 56.2 in August 2022 and reflecting the second-strongest improvement in operating conditions since November 2021.

In August 2022, faster increases in new orders and output were recorded while there were slower expansions in employment and stocks of purchases. Delivery times shortened to the greatest extent in close to five years. Higher sales volume, efforts to enhance capacities, fewer COVID-19 restrictions and product diversification helped Indian manufacturers to increase their production fastest in nine months. Moreover, factory orders rose at the quickest pace since last November, reportedly boosted by strengthening demand conditions, successful advertising and acquiring new clients. In response to increased foreign demand, total sales rose, reflecting a quicker increase in new export orders.

In August 2022, inflationary pressure softened to a 12-month low as commodity prices (particularly aluminium and steel) moderated. However, manufacturers continued to signal higher prices for a wide range of products and passed on their cost burdens to the customers.

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Japanese manufacturing PMI indicated a slower improvement in operating conditions in August 2022 as output growth and new orders declined for two months in a row. Firms reported that orders were stifled by a rise in COVID-19 cases, as well as weaker domestic and global economic conditions. However, business optimism remained positive as firms predicted that the recovery in global prices and supply chains would eventually encourage new product launches and boost output in the coming year.

The Japan Manufacturing PMI registered 51.5 in August 2022 down slightly from 52.1 in July 2022, signalling a steady but softer improvement in the health of the sector. August manufacturing PMI was the lowest recorded since February 2021. New order intakes declined with the sharpest drop in sales since October 2020. Export orders also fell at a sharper rate that was the fastest for three months amid weaker demand across the Asia-Pacific region, particularly in China and South Korea.

Production levels fell slightly in August due to a decline in new orders and weak demand, along with consistent raw material shortages. Backlogs of work decreased for the first time in 18 months. Firms reported that they completed pending work as there were no new orders. Employment levels increased for the consecutive seventeenth month, though the rate of job creation was the weakest since April 2021.

In August 2022, weaker demands were registered as high raw material prices placed constant pressure on the average cost of the products with input prices rising for the twenty-seventh month in a row. Average lead times were recorded lowest since July 2021.

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China’s manufacturing sector health slightly deteriorated during August 2022, as power cuts, heat waves and temporary factory closures dampened output growth and sales. The business optimism was low in August as firms were uncertain over how long the pandemic will continue to disrupt manufacturing operations.

China Manufacturing PMI declined marginally to 49.5 in August 2022 from July’s 50.4, pointing to the first contraction in the sector since May 2022. This fall was attributed to the first drop in sales in three months. Firms reported that the subdued market conditions, power cuts, temporary factory closures due to the recent heatwave and lingering COVID-19 impacts have constrained overall sales and production. Foreign demand also fell back into contraction, with new export orders decreasing softly.

Employment levels fell for the fifth consecutive month, as firms reported downsizing policies due to lower intakes of new work. Meanwhile, backlogs of work remained stable in August after declining for two months in a row. Firms reported that the disruption to power supplies and production schedules had limited their ability to process and complete outstanding business

Inflationary pressure eased in August with average input costs falling for the first time since May 2020. Firms stated that lower prices for some raw materials such as metal and chemicals had helped to pull down expenditures. To improve competitiveness and boost sales, firms passed partial cost burdens onto consumers, with selling prices falling at the quickest rate since May 2022.

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