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Global Manufacturing: U.S., Europe, U.K. Bright in April, But Japan Dulls Global Growth

Posted By Paul Tate, May 06, 2014 at 9:59 AM, in Category: Manufacturing Leadership Community

Global manufacturing continued to show positive growth around the world last month, especially in the U.S., Europe, and the U.K. However, the introduction of higher sales taxes in Japan during April has had a detrimental local impact and dragged down overall global manufacturing performance to a 6-month low.

U.S. manufacturers reported a strong start to the second quarter with both output and new business volumes rising sharply last month. The overall U.S. manufacturing Purchasing Managers’ Index (PMI), compiled by industry researchers Markit, held solid in April at 55.4, little-changed from the 55.5 figure in March. (A PMI figure above 50 marks manufacturing sector expansion.)

Among the highlights: the U.S. manufacturing output sub-index increased at the steepest pace since March 2011, new order growth accelerated over March with one of the fastest increases for the past four years, and job growth was recorded across the sector for the tenth consecutive month.

“The [U.S.] April PMI represents a good start to the second quarter,” commented Chris Williamson, chief economist at Markit. “The upturn in manufacturing output and new orders … suggest that the economy should rebound after the disappointing 0.1% annualized GDP growth rate seen in the first three months of the year."

Over the ocean, meanwhile, the U.K. was again one of the brightest spots in the global manufacturing industry last month with an impressive PMI of 57.3, up significantly from the 55.8 figure in March. Growth in output and new orders both accelerated in the U.K. and manufacturing production hit an eight-month high.

“U.K. manufacturing continued its surging start to 2014, with output growth accelerating in April to a level among the highest for the past two decades,” noted Markit’s senior economist Rob Dobson.

Europe is performing well too, with the composite 18-nation manufacturing PMI rising to a three-month high at 53.4, up from 53.0 in March. In fact all the Eurozone nations recorded manufacturing PMI’s above the 50 growth threshold for the first time since November 2007.

The Eurozone manufacturing production sub-index also rose for the tenth successive month with the highest rate of expansion since January. Even some Europe’s most troubled economies showed solid manufacturing performance last month, with Ireland recording a PMI of 56.1 (a 38-month high), and Italy with a PMI of 54.0 (a 36-month high). The rate of manufacturing growth in Germany dipped slightly at 54.1 in April, as did France and the Netherlands, but all are still showing positive trends about the 50 threshold.

“The Eurozone PMI paints a promising picture for the region’s manufacturers at the start of the second quarter", said Markit's Chris Williamson. “Regardless of the divergent rates of growth, perhaps the best take-away from the April survey.is the news that all countries recorded PMI readings above the no change level of 50, which highlights how the recovery is becoming more broad-based and therefore hopefully more sustainable, as rising demand from each member state feeds growth in other countries.”

The manufacturing performance of many Asian nations, however, remains subdued. China’s April HSBC/Markit PMI came in at 48.1, up only slightly from 48.0 in March and the fourth successive monthly deterioration in its manufacturing sector.

India’s manufacturing PMI remained unchanged from March’s reading of 51.3, but showed the weakest rise in its manufacturing production sub-index in four months. Taiwan posted a PMI of 52.3 in April, down from 52.7 in March. South Korea’s PMI also slipped slightly to 50.2 in April, from 50.4 the previous month.

Vietnam’s PMI also slid to 53.1 in April from 51.3 in March, although the rate of growth in new orders accelerated for the second month running, the fastest in the history of its PMI assessments. However, Indonesia’s manufacturers saw a welcome increase in activity with a PMI up to 51.1 from 50.1 in March – an 11-month high.

Elsewhere in the world, Russia’s manufacturing sector remained in contraction for the sixth successive month at 48.5; Brazil dipped below the growth threshold from 50.6 in March to only 49.3 in April; Turkey’s PMI hit the lowest level since August 2013 at 51.1; and Mexico showed only marginal improvement at 51.8, up from 51.7 in March.

The Czech Republic faired better however, reflecting Europe’s improvements on its borders, with a manufacturing PMI of 56.5, matching February’s 34-month record high and purchasing activity by manufacturers increasing at the fastest rate in three years.

The big loser last month was Japan. Though the impact of increased sales taxes on manufacturing is expected to be brief, Japan’s PMI fell sharply into contraction from 53.9 in March to just 49.4 in April. This is the first time in 14 months that the Japanese manufacturing sector has registered a deterioration in business conditions.

“As was expected, the implementation of the increase in the sales tax negatively impacted on Japanese manufacturing companies,” noted Markit economist Amy Brownbill. “Output and new orders both fell for the first time in 14 months. In both cases, Japanese manufacturing companies linked the reductions to the increase in the sales tax.”

This dip in Japan’s fortunes dragged down an otherwise healthy JP Morgan global manufacturing PMI reading for last month. Covering 26 major manufacturing economies around the world, the global manufacturing PMI slipped to a six-month low of 51.9 in April, down from 52.4 in March.

But the good news is that JP Morgan analysts believe the underlying trends in the global figures for April, "suggest the downturn may be brief, providing a boost to the global indices in coming months."

What’s more, global manufacturing employment actually increased for the ninth successive month in April. Jobs growth was recorded in 22 out of the 26 nations, with China, France, Brazil and Russia as the notable exceptions.

So overall, and despite Japan’s temporary downturn skewing the April figures, global manufacturing performance remains in growth, with especially strong expansion continuing across the manufacturing sectors of many Western nations.

The question is: is this global shift now set to continue through the rest of the year? Do you expect to see the focus of production activity continuing to swing away from Asia and back towards the world’s traditional manufacturing powerhouses in the months ahead? 

Written by Paul Tate

Paul Tate is Research Director and Executive Editor with Frost & Sullivan's Manufacturing Leadership Council. He also directs the Manufacturing Leadership Council's Board of Governors, the Council's annual Critical Issues Agenda, and the Manufacturing Leadership Research Panel. Follow us on Twitter: @MfgExecutive

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