Manufacturing PMIs
USA: US manufacturing sector returns to growth and business confidence surges
The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI®) moved back above the 50.0 no-change mark for the first time in seven months during January. At 51.2, the PMI was up from 49.4 in December, and pointed to a modest improvement in the health of the sector at the start of the year.
The renewed strengthening of business conditions in large part reflected returns to growth of both new orders and output.
New business increased for the first time since June last year amid improving customer demand and greater confidence in the economy. New export orders nonetheless continued to fall in January, albeit marginally.
Production volumes rose for the first time in six months. Although the pace of expansion was modest, the increase represented a marked turnaround from the end of 2024 when output had fallen at a solid pace.
The aforementioned rise in new orders had been a factor leading to growth of output, while a number of respondents linked the expansion in production schedules to the start of the Trump presidency.
As well as supporting demand in January, the incoming administration also provided a boost to business confidence.
Manufacturing sector optimism jumped sharply from the end of 2024, showing the largest monthly improvement in sentiment since November 2020. Confidence hit a 34-month high as more than half of respondents predicted a rise in manufacturing production over the coming year.
A combination of higher new orders and improving business confidence meant that manufacturers increased their staffing levels for the third month running. Moreover, the pace of job creation was the highest since June 2024.
Backlogs of work continued to fall as a recent period of subdued demand meant that spare capacity remained in the sector. That said, the pace of depletion slowed sharply and was the weakest in seven months, reflecting the renewed expansion of new orders.
Although firms continued to scale back their purchasing activity in January, the pace of reduction was the weakest in the current eight-month sequence of decline and only marginal.
Some firms indicated that their current holdings of inputs were sufficient to deal with orders, and showed a desire to draw down on stocks during the month. In fact, inventories of purchases fell markedly, and to the largest extent since August 2023. Stocks of finished goods were also down in January.
Suppliers’ delivery times lengthened for the fourth consecutive month, reflecting staff shortages at vendors and extreme weather conditions – both the wildfires in California and unusually freezing conditions elsewhere in the country.
Firms were also faced with a further sharp increase in the cost of inputs, with the pace of inflation unchanged from December.
Manufacturers therefore raised their own selling prices at a marked pace. The rate of factory gate price inflation quickened for the third month running to the fastest since March 2024.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence
“A new year and a new President has brought new optimism in the US manufacturing sector. Business confidence about prospects for the year ahead has leaped to the highest for nearly three years after one of the largest monthly gains yet recorded by the survey. Over the past decade, only two months during the reopening of the economy from pandemic lockdowns have seen business sentiment improve as markedly as recorded in January.
“Manufacturers report that political uncertainty has cleared and the pro-business approach from the new administration has brightened their prospects. Production has already improved after falling throughout much of the last half of 2024, amid rising domestic sales. Factories have also stepped up their hiring to meet planned growth of production capacity.
“However, a rise in the rate of increase of both input costs and selling prices could become a concern if this intensification of inflationary pressures is sustained in the coming months, especially as the combination of higher price pressures alongside accelerating economic growth and rising employment is not typically conducive to cutting interest rates.”
The ISM:
(…) the ISM Manufacturing Index crested above the 50 line into expansion for the first time since 2022. News that manufacturing activity is once again in expansion mode will not be salve to worried investors as it reflects a pre-tariff assessment.
There was broad based strength in the ISM with four of the five components that make up the headline index higher at the start of the year. Specifically, new orders leaped three points to 55.1, which marks the fifth-consecutive monthly move higher suggesting more of a trend-step up rather than one-off bump. The measure of current production was also in expansion for the first time in nine months signaling stronger activity.
The one caveat in this report is that stronger activity comes with stronger price pressure. The prices paid index rose to 54.9, consistent with the broadest expansion in manufacturing input prices since May. Eleven industries reported paying higher prices for materials last month. This could prove problematic for the Fed to the extent goods disinflation subsides as services inflation remains elevated, making the road to 2% all the more challenging.
Factories have laid off workers in four out of the past five months, but that may be poised to change. Manufacturing hiring looks to have at least stabilized according to purchasing managers. The employment component rose 4.9 points, which was more than any other sub-component, to crest modestly above 50 in January. That said, the underlying details in terms of number of industries hiring was not overly positive.
CANADA: Modest expansion of Canadian manufacturing economy
The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index™ (PMI®) recorded 51.6 in January. That was indicative of a modest rate of expansion, and down since December when the PMI registered 52.2. That said, the headline index has now recorded above the crucial 50.0 no-change mark for five months in a row.
Production rose again in January, in line with the trend since last October. The latest expansion was partially linked to higher sales. Latest data showed that new orders rose, supported by an increase in new export sales for the first time since August 2023.
Anecdotal evidence suggested that the threat of US tariffs had led to some clients bringing forward orders. However, uncertainty and hesitation were also widely reported across product markets, largely over the extent of US tariffs and how the possibility of a global trade war could impact economic activity. Subsequently, new work overall rose only modestly and to the weakest extent in three months.
Tariff concerns also weighed on the confidence of manufacturers. Although firms are hoping to bolster output in the year ahead as they plan to release new products, business expectations were at their lowest since last July. Such uncertainty led firms to take a circumspect approach to purchasing activity, with firms reducing their input buying to the greatest extent since last August.
With production rising to a greater extent than new orders, manufacturers added to their warehouse inventories during January. Growth was modest and down on December’s record increase, however. Some firms noted challenges in shipping out goods, due to ongoing difficulties in sourcing transportation and poor weather conditions.
A modest increase in staffing levels was recorded in January, extending the current period of growth to five months. Open positions were reported to have been filled, whilst there was some recruitment in reaction to higher sales and production requirements. Firms were subsequently able to keep on top of their workloads as signalled by another cut in work outstanding. Backlogs have now been reduced consistently throughout the past two-and-a-half years.
Finally, input price inflation accelerated in January to a 21-month high. A stronger US dollar was reported to have raised the price of imported goods, according to panellists. Output charges rose in response, with inflation also picking up to its highest level since last August.
Eurozone factory downturn eases at start of 2025
The HCOB Eurozone Manufacturing PMI, a measure of the overall health of eurozone factories compiled by S&P Global, rose from 45.1 in December to an eight-month high of 46.6 in January. Albeit still below the critical 50.0 threshold which separates improvement from deterioration, it signalled the softest decline since May last year.
Data broken down by the eurozone nations where PMI survey data are collected revealed continued growth in Greece and Spain. That said, rates of expansion cooled from the previous month. France and Germany recorded the joint-lowest Manufacturing PMI prints in January, although the rates of contraction signalled in both instances were noticeably softer than in December. Austria and Italy also posted further (but slower) deteriorations, while the Netherlands saw a fractionally faster decline at the turn of the year.
The uplift in the headline index was principally a reflection of its main two components – new orders (30%) and output (25%) – which saw much softer declines in January. In both cases, the rate of contraction was the slowest since May 2024, indicating a relative improvement compared to the second half of last year. Export* markets were less of a drag on eurozone factory sales performances, with foreign customer orders falling by the smallest margin since last May.
Eurozone factories still tapered their purchasing activity in January, although the decline was the softest seen for eight months. Stocks of inputs (which is also a component of the Manufacturing PMI) subsequently recorded a weaker rate of depletion.
That said, employment levels were cut further at the start of 2025, with the rate of job shedding accelerating fractionally. This marked a twentieth successive month that factory staffing numbers have declined. Surveyed companies noted that they were still able to make inroads into their outstanding orders, as evidenced by another monthly reduction in backlogs of work.
Meanwhile, January survey data indicated a renewed rise in manufacturers’ operating expenses. For the first time since last August, input costs rose during the latest survey period. However, the rate of inflation was modest and well below the historical average. Businesses refrained from passing on higher costs to their customers as output charges were unchanged. This brought a four-month sequence of discounting to an end. Notably, since May 2023, eurozone goods prices have decreased in 19 out of 21 months.
Looking ahead, eurozone goods producers were more optimistic towards the outlook for production. In fact, growth expectations rose to their strongest since February 2022, the survey month prior to Russia’s full-scale invasion of Ukraine.
Commenting on the PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:
(…) “Even though the new US administration will likely hit the European manufacturing sector and its export industry with tariffs and other measures, confidence in the future has made a remarkable jump. The index for future output is four points higher and slightly above its long-term average. Maybe there’s hope that the lethargy is ending, with general elections in Germany and possibly France, and a climate of “the time is ripe to change things and get things done.”
“Germany and France hold the red lantern in the eurozone’s manufacturing sector, with Austria and Italy not faring much better. At least the manufacturing recession has slowed somewhat in all these countries, and this applies across a broad range of sectors. In Germany and France, the situation for capital goods, intermediate goods, and consumer goods is no longer as dramatic as it was the previous month. It’s possible that things will improve further this year. Despite all of Trump’s tariff threats, we must remember that for most countries in the eurozone, 90% or more of exports go to countries other than the US.”
CHINA: Manufacturing new orders growth accelerates at the start of 2025
The headline seasonally adjusted Purchasing Managers’ Index™ (PMI®) fell to 50.1 in January, down from 50.5 in December. Posting above the 50.0 neutral mark, the latest data signalled that conditions in the manufacturing sector improved for a fourth straight month, albeit only fractionally.
Manufacturing production in China increased for a fifteenth successive month at the start of 2025. Moreover, the pace of expansion accelerated from December, in line with the trend for new orders. According to panellists, higher new business, driven by better underlying demand and increased promotional efforts, supported the rise in output. Some manufacturers also noted that client desires to stockpile underpinned the growth in new work inflows. The rise in new orders stemmed mainly from improvements in domestic demand, however, as export orders fell fractionally in January.
On the back of better demand and hopes for further growth amid expectations of increased business development efforts and supportive government policies, sentiment improved among Chinese manufacturers at the start of the year. The level of business optimism remained below-average, however, as concerns over trade amidst US tariffs threats continued to weigh on the outlook.
Concerns regarding expectations for growth also affected hiring decisions in January, as employment levels fell at the fastest pace since February 2020. A reduction in staffing levels and rising new orders nonetheless led to a fourth monthly accumulation of backlogged work in the Chinese manufacturing sector.
Meanwhile purchasing activity continued to expand in response to higher work inflows. The rise in input buying, coupled with an improvement in delivery times, enabled firms to grow their stocks of purchases for the sixth month in a row. Similarly for post-production inventories, a further accumulation was observed with panellists also indicating interests to retain additional inventory as buffer stocks.
Finally, average input prices stabilised at the start of the new year, with instances of suppliers offering discounts offsetting mentions of rising raw material costs. Some manufacturers therefore took the opportunity to lower selling prices to support sales, leading to a second monthly decline in average charges and at the quickest pace for one-and-a-half-years. Export charges meanwhile stabilised in line with the trend for input costs.
Did sentiment actually improved?
JAPAN: Strongest deterioration in manufacturing conditionsfor ten months
At 48.7 in January, the headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index™ (PMI®) fell from 49.6 in December to indicate a modest decline in overall operating conditions that was nonetheless the most pronounced since last March.
Output fell for the fifth consecutive month at the start of the year, with the respective seasonally adjusted index indicative of a moderate decline in production levels. Moreover, the contraction was the steepest for ten months as firms often indicated that a lack of new orders had led to output cuts.
The level of new orders placed with Japanese manufacturers also fell in January, and at a moderate pace that was the most pronounced for six months. Where sales fell, firms mentioned sustained weakness in client confidence, particularly in the semiconductor and automotive segments. International demand was also soft, as new export sales contracted though the latest fall was the softest in the current 35-month sequence and fractional.
In the absence of new orders. goods producers opted to complete existing orders, as signalled by another sharp reduction in backlogs of work. At the same time, firms mentioned that additional experienced staff had been taken on as part of attempts to stimulate sales, which contributed to a second successive monthly increase in employment levels.
Business confidence remained positive in January, reflecting expectations that new production launches and customer numbers would be successful. Firms were also hopeful of a wider economic recovery, with notable emphasis on the automobile and semiconductor sectors. The degree of confidence eased on the month, however, to the lowest since December 2022.
Input purchases were lowered for the fourth month running during January, with the latest reduction the steepest since last March amid lower production requirements. The weakness in output and demand also contributed to sustained declines in holdings of both pre- and post-production inventories, as manufacturers opted to adjust inventories in line the with the current muted demand environment.
There was evidence, however, that vendor performance deteriorated in January, though the extent to which lead times lengthened was the softest in the current-five-month sequence and only fractional.
The survey’s price indices showed that inflationary pressures remained elevated across the Japanese manufacturing sector. Firms mentioned that higher labour, logistics, raw material and utility prices had been key factors behind higher cost burdens. Positively, the rate of inflation eased from December to reach the lowest for nine months. Firms opted to partially pass higher costs to clients though raised output prices, though the rate of charge inflation also eased on the month.
ASEAN manufacturing sector starts 2025 on a softer note
The S&P Global ASEAN Manufacturing Purchasing Managers’ Index™ (PMI®) signalled only a modest improvement in the health of ASEAN manufacturing in January, with a reading of 50.4, down from 50.7 in December and the lowest for nearly a year.
The improvement in operating conditions was highlighted by only slight increases in order book volumes and output. Growth rates in both categories have slowed, with the most recent gains being the weakest observed in their respective current 11- and four-month growth trends. (…)
Beijing imposed a 15% levy on less than $5 billion of US energy imports and a moderate 10% fee on American oil and agricultural equipment on Tuesday, moments after new US tariffs entered effect. China said it will also investigate Google for alleged antitrust violations, although Alphabet Inc.’s search services have been unavailable in the country since 2010.
In more targeted measures, authorities put Calvin Klein owner PVH Corp. and US gene sequencing company Illumina Inc. on a so-called blacklist of entities that could affect their sizable operations in China, and imposed new export control on tungsten and other critical metals used in electronic, aviation and defense industries.
President Xi Jinping’s response appeared carefully calibrated to avoid major blowback on China’s economy while showing Trump an ability to inflict damage on a range of fronts, including by disrupting the key minerals supply chain and hurting US companies with major operations on the mainland.
(…) Trump said Monday the two leaders would speak again, “probably over the next 24 hours,” an assertion to which Beijing hasn’t publicly responded. The Chinese tariffs are set to kick in on Feb. 10, potentially leaving room for negotiation. (…)
China is the largest producing country of tungsten, accounting for about 80% of the global production. Tungsten, known for its remarkable density and high melting point, acts as a buffer against intense temperatures and is most commonly used in armor-piercing missiles in the defense industry. (…)
President Trump never admits a mistake, but he often changes his mind. That’s the best way to read his decision Monday to pause his 25% tariffs against Mexico and Canada after minor concessions from each country. (…)
If the North American leaders need to cheer about a minor deal so they all claim victory, that’s better for everyone. The need is especially important for Mr. Trump given how much he has boasted that his tariffs are a fool-proof diplomatic weapon against friend or foe. Mr. Trump can’t afford to look like the guy who lost. (…)
None of this means the tariffs are some genius power play, as the Trump media chorus is boasting. The 25% border tax could return in a month if Mr. Trump is in the wrong mood, or if he doesn’t like something the foreign leaders have said or done. It also isn’t clear what Mr. Trump really wants his tariffs to achieve. Are they about reducing the flow of fentanyl, or is his real goal to rewrite the North American trade deal he signed in his first term? If it’s the latter, there’s more political volatility ahead.
Mr. Trump’s weekend tariff broadside against a pair of neighbors has opened a new era of economic policy uncertainty that won’t calm down until the President does. As we warned many times before Election Day, this is the biggest economic risk of Donald Trump’s second term.
BTW: “On Monday, Trump aides tried to play down the aggressiveness of his trade actions, with National Economic Council director Kevin Hassett saying on CNBC that this is a “drug war,” not a “trade war” and that the media and Canadian government were interpreting the tariff orders incorrectly.” (WSJ)
BTW #2:
Fentanyl realities (Axios)
Trump’s order imposing tariffs on Canada specifically cities the flow of fentanyl from our northern neighbor.
Yes, but: There’s very, very little fentanyl actually being intercepted at the Canadian border.
For fiscal year 2022 through the first quarter of fiscal year 2025, U.S. Customs and Border Protection seized more than 66,000 pounds of fentanyl at the southwestern border with Mexico.
- In that same period, it seized just 70 pounds at the Canadian border.
- To be sure, the White House said the fentanyl crossing from Canada is still enough to kill 9.5 million Americans a year.
There’s likely to be more than $1 billion in tariffs per pound of fentanyl seized crossing over from Canada.
Data: U.S. Customs and Border Protection. Chart: Axios Visuals
U.S. Frackers and Saudi Officials Tell Trump They Won’t Drill More
Trump for months has encouraged the U.S. shale industry to “drill, baby drill,” but another American oil boom isn’t in the cards soon, no matter how many regulations are rolled back, according to oil executives. After many producers overdrilled themselves into bankruptcy during the shale boom’s heyday, the industry is now focused on keeping costs down and returning cash to investors.
The president’s advisers concede that U.S. frackers won’t pump much more, according to people familiar with the matter. The advisers say his best lever to bring down prices might be to persuade the Organization of the Petroleum Exporting Countries and Saudi Arabia, the group’s de facto leader, to add more barrels to the market.
But Saudi Arabia has told former U.S. officials that it also is unwilling to augment global oil supplies, say people familiar with the matter. Some of those former officials have shared the message with Trump’s team. (…)
Keith Kellogg, Trump’s special envoy to Ukraine and Russia, has said global producers should try slashing oil prices to $45 a barrel, to pressure Russia into ending the war with Ukraine. (…)
At lower oil prices, Saudi Arabia would struggle to generate enough revenue to pay for social services, monthly payments to citizens and big infrastructure projects. It will need about $90 a barrel this year to balance its budget, according to the International Monetary Fund.
There is a clash coming between Trump and Saudi Arabia over oil prices, one of the former U.S. officials said. (…)
Two former U.S. officials were told the kingdom would be reluctant to rush to boost production because they were weary of a repeat of the 2019 oversupply.
That year, the Trump administration asked the kingdom to anticipate the return of the Iran embargo by opening up the spigots. But Trump surprised the Saudis by allowing exemptions for some Iranian oil buyers in Asia—leading to an oil glut and lower prices.
Another factor is that the Saudis say privately they need Russia’s involvement in OPEC+—an alliance between the cartel and other producers, including Russia—to prop up prices.
The Saudi government is also giving priority to peaceful relations with Iran, an about-face from their adversarial attitude back in 2018. Back then, the Saudis opposed the nuclear agreement and backed sanctions. Now, the kingdom wants to be part of nuclear negotiations rather than lobbying against them, Saudi officials say.
The fourth quarter reading on the employment cost index (ECI) offered further evidence that the cooler jobs market is reducing upward pressure on inflation. Employment costs rose 0.9% in the fourth quarter, in line with expectations. Over the past year, compensation costs have risen 3.8%.
While that remains notably stronger than the past cycle’s peak of 3.0%, it has neared the realm consistent with the Fed’s 2% inflation target once accounting for the stronger pace of productivity this cycle (productivity growth allows businesses to raise compensation faster than selling prices). (…)
Annual growth in hourly earnings averaged 4.0% in the fourth quarter, up two tenths from the prior quarter. Unlike the more volatile AHE figures, however, the ECI controls for compositional shifts in the employment base along industry and occupational lines. It also includes state and local government workers as well as benefits (about 30% of compensation), making it a more encompassing measure of labor costs.
About AI and productivity:
Good January, Good Year?
Source: @RyanDetrick
China Hits Back Against Trump’s Tariffs With Targeted Actions