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Mixed Fortunes Ahead for Global Manufacturing as U.S. Growth Ends 2015 at 3-Year Low

Posted By Paul Tate, January 12, 2016 at 8:35 AM, in Category: Manufacturing Leadership Community

World_Map_Illuminated.jpgThe global manufacturing industry kicked off the new year with mixed fortunes as industrial growth figures for December show U.S. manufacturing growth sliding to a 3-year low, and both China’s and India’s industrial activity in contraction. The main bright spot was the 18-nation Eurozone, which continued to regain its manufacturing mojo and finished the year on a 20-month high.

In the U.S., the latest Purchasing Managers’ Index (PMI) figures from industry researchers Markit Economics shows manufacturing growth for December dipping to its lowest level since October 2012 at just 51.2, down from 52.8 in November. Although still above the 50 PMI threshold that marks the difference between growth and contraction, this low U.S. growth figure suggests only a marginal improvement in business conditions last month.

“The [U.S.] manufacturing sector saw a disappointing end to 2015, and its plight looks set to continue into the New Year as headwinds show no sign of abating any time soon,” suggested Markit chief economist Chris Williamson in a statement. “Order book growth has stalled as producers report some of the toughest trading conditions since the end of the global financial crisis.”

“The strong dollar is hurting exporters as well as hitting domestic sales as firms compete against inflows of cheap imports,” he continued. “Low oil prices are meanwhile hitting demand for goods and machinery from the energy sector. There are signs that consumers are becoming more cautious in relation to spending as interest rates lift off their historic lows, and overseas demand remains in the doldrums. All of these factors look set to continue to hurt manufacturers, and even intensify, in coming months.”

Across the Atlantic in the Eurozone, however, the December PMI figures show significantly improved industrial performance across the region with a PMI of 53.2, up from 52.8 in November and the highest growth rate for the last 20 months.

While Germany, Europe’s manufacturing powerhouse, saw growth slipping to a 3-month low in December at 53.2, Italy recorded a 57-month high at 55.6, France hit a 21-month high at 51.4, and even Greece managed to pull itself out of contraction to record a PMI above the 50 growth threshold at 50.2, the first time that all 18 Eurozone nations have recorded positive growth figures since April 2014.

“The end of 2015 saw the Eurozone manufacturing recovery gain further traction, with rates of expansion in production and new orders over the final quarter besting those of quarter three. Survey data also indicate that manufacturing growth over 2015 as a whole averaged above those achieved in each of the previous three years,” stated Rob Dobson, Senior Economist at Markit. 

He added a note of caution for Europe in the year ahead, however: “While there is much to be positive about in these figures, the underlying picture is still one of solid yet unspectacular expansion. With Eurozone manufacturing still some 9% off its pre-crisis peak, it looks as if the sector still has some distance to travel before the climb back to full recovery is completed.”

In Asia, meanwhile, two of the region’s most prominent manufacturing hubs recorded poor results last month.

Chinese manufacturing activity continued to deteriorate in December as the country’s industrial PMI slipped further into contraction, down to just 48.2 from its 48.6 level the previous month. Business conditions in China have now worsened in each of the past 10 months. Production also declined for the seventh time in the past eight months, driven by a further fall in new business with demand weak both at home and abroad and new export business falling for the first time in three months. As a result, China’s manufacturers continued to trim staff numbers and reduce purchasing activity.

In India, December’s incessant rainfall in the industrially-intense Chennai region seems to have heavily affected the sector. India’s PMI dipped into contraction in December for the first time since October 2013, down to from 50.3 in November, to 49.1 last month. Falling levels of new work also led companies to scale back output at the sharpest pace since February 2009.

Nevertheless, some of Asia’s smaller manufacturing economies fared better at the end of 2015. Taiwan emerged from contraction with a PMI of 51.7 in December, a strong improvement over its 49.5 level in November; Vietnam also moved back into growth with a PMI of 51.3, up from 49.4 in November; and for the first time in ten months, South Korea recorded a PMI above the 50 growth threshold at 50.7 last month, up from 49.1 in November.

Even Malaysia, which had slipped into its deepest contraction since 2012 in November with a PMI of 47.0, saw the rate of deterioration slow as conditions improved to push its December manufacturing PMI back up a point to 48.0.

Japan, meanwhile, continued to show sustained growth with a PMI last month unchanged at 52.6. New orders also increased at a rate that matched October’s one-year high, supporting further expansion in output, employment, and buying activity.

Elsewhere in the world, Turkey saw its PMI improve from 50.9 to 52.2 last month, indicating the strongest overall improvement in manufacturing business conditions since November 2014. Russia, however, dipped once again into contraction last month with a PMI of only 48.7 in December, down from 50.1 in November, and the first time it has fallen back into negative territory for the last three months. Brazil continued its manufacturing decline following its 80-month low of just 43.8 in November, with a December PMI of 45.6 last month, still well below the 50 growth threshold. And Mexican manufacturing activity dipped to its lowest level for three months, down from 53.0 in November, to 52.4 in December.

So despite positive gains in Europe, Japan, and some South East Asian countries at the end of 2015, the slowing down of U.S. manufacturing activity, the continuing contraction in China, and downturns in other emerging markets such as Brazil, India, and Russia, meant that the global manufacturing sector ended the year on a disappointing note, according to the composite J.P. Morgan Global Manufacturing Index. December’s global PMI remained only modestly above the 50 growth threshold at 50.9, down from a healthier 51.2 in November.

The overall signs are not good for the year ahead either. December also saw global manufacturing output increase at the slowest pace since September, as the growth of incoming new orders eased to its weakest pace for eight months. What’s more, the average global PMI reading over 2015 as a whole was below both the prior two years.

“Global manufacturing ended 2015 on a subdued footing, as the ongoing downturns in emerging markets such as China, Brazil, India and Russia remained a drag on global IP growth,” commented on David Hensley, Director of Global Economic Coordination at J.P. Morgan. “Sector PMI data show that weak investment and business-to-business spending are the main drags on global growth, while consumer goods demand continues to be a positive driver of growth.”

Manufacturers will be hoping that this positive news on global consumer goods demand may help push many nations back into more substantial growth in the year ahead. But it looks like manufacturers are going to face some challenging times as the new year gets underway.

What’s your view? Do you see growth rates expanding for your manufacturing business in 2016?

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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