MANUFACTURING PMIs (2)
USA: Production falls for first time in seven months
The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI®) posted 47.9 in August, down from 49.6 in July and below the 50.0 no-change mark for the second consecutive month. The latest reading signaled a modest deterioration in the health of the manufacturing sector, and one that was the most marked in 2024 so far. (…)
Firms scaled back production in response to falling sales as demand across the sector waned. Indeed, new business decreased for the second month running. The solid reduction in new orders was the most marked since June 2023. In some cases, clients showed a reluctance to commit to new projects given a slowdown in market demand. Inflationary pressures also had a negative impact on new business.
New export orders were down again, falling for the third month running and at a solid pace. Geopolitical issues were partly responsible for the latest reduction in overseas demand, according to respondents.
As was the case with production, manufacturers saw a renewed decline in employment midway through the third quarter. Staffing levels decreased for the first time in 2024 so far, reflecting falling new orders and lower output requirements.
Purchasing activity was also scaled back, with the pace of decline the sharpest in the year-to-date. Firms reported efforts to draw down inventories in response to falling new orders, resulting in a sixth successive monthly drop in stocks of inputs. In part, the reduction in pre-production inventories also reflected efforts to improve cash flow.
Despite a reduction in capacity, manufacturers were again able to work through outstanding business as new orders fell solidly. Backlogs of work were depleted for the twenty-third month running, and at the fastest pace since April. (…)
In contrast to the picture for stocks of purchases, inventories
of finished goods increased during August, the second month in a row in which this has been the case. Some respondents indicated that they had made use of the spare capacity provided by a reduction in client demand to replenish stocks of finished products, while others noted unintended inventory accumulation.The rate of input cost inflation quickened to a 16-month high in August and was above the average seen prior to the COVID-19 pandemic. Higher costs for shipping and labor were reported, alongside rising raw material prices. In turn, output prices also increased at a faster pace, albeit one that was still the second-slowest in 2024 so far. (…)
(…) Only two of the five components that feed into the headline rose in August. Employment (up 2.6 to 46.0) and inventories, which rose twice as much (+5.8 points to 50.3). Production, supplier deliveries and new orders were all lower. The most disconcerting development is the 2.8 point drop in new orders, which took this leading indicator to its lowest since May of last year.
While a sub-50 print may indicate a discouraging backdrop for the factory sector, it takes an even lower reading to signal outright recession for the broader economy; 42.5 in fact, according to the ISM. So today’s report for August activity is broadly consistent with a theme that has been in place for the better part of the past two years: the economy is still expanding even if the factory sector is not. (…)
The new orders component slid nearly three points to the lowest reading since May of last year, and the only of the six largest industries to report an increase in new orders was the computer & electronic products—which has been a notable bright spot in an otherwise flagging sector. The measure of current production also slid deeper into contraction last month.
As mentioned, most of the strength came from inventories. While inventories can be volatile, it’s the first time this component crested above 50 since early 2024 and the release notes manufacturers adjusting to lower output levels and timing issues. In other words, this inventory was unintended and a consequence of slowing demand. Without the inventory build, the overall ISM composite index would have seen a decline twice as large in August. (…)
Canada: PMI moves closer to stabilisation in August
(…) August’s survey revealed weaker contractions in both output and new orders. Panellists nonetheless continued to report a subdued economic environment, both at home and abroad. Clients were said to be hesitant in committing to new work linked to some uncertainty in the geopolitical and global economic outlooks.
New export orders declined for a twelfth successive month, although the rate of contraction also softened noticeably to its slowest since May.
The lack of incoming new work and reduced production requirements meant firms cut their staffing levels for the second time in the past three months. The decline was also the steepest in 2024 so far, with reports of the nonreplacement of leavers and some concerns about the economic outlook leaving firms reticent to hire new workers. (…)
Some firms remained concerned over the impact on demand of elevated prices and high interest rates.
Price pressures intensified during August. Input price inflation accelerated to its steepest level since April 2023, linked to higher prices for a variety of inputs (plastics were especially noted). There were also reports that unfavourable exchange rate movements and high shipping costs had raised overall input prices. In response, manufacturers raised their own charges to the greatest degree since last November. Meanwhile, firms also reported ongoing sea freight delays. (…)
Global manufacturing production, new orders and employment all decline slightly in August
The J.P.Morgan Global Manufacturing PMI™ – a composite index produced by J.P.Morgan and S&P Global Market Intelligence in association with ISM and IFPSM – fell to an eight-month low of 49.5 in August, to remain below the neutral 50.0 mark for the second successive month.
Out of the 31 surveys for which August data were available, 18 registered a PMI reading consistent with a deterioration in manufacturing operating conditions. This included downturns in the US, the euro area as a whole and Japan. Although, the China PMI moved slightly back above the nochange mark, at 50.4 it remained at a subdued level. Solid growth was seen in India – which was also the best performer by far – the UK and South Korea (among others).
August saw global manufacturing production decrease, albeit only slightly, for the first time in 2024 so far. Output contracted in both the intermediate and investment goods industries. Although the upturn at consumer goods producers continued, the rate of growth was only mild and the weakest during the current 13-month sequence of expansion.
July and August have seen back-to-back contractions in the level of new work received by global manufacturers. The rate of growth was also identical to the prior survey month.
All three of the sub-industries covered by the survey (consumer, intermediate and investment goods) saw new order intakes decrease. The trend in global trade was especially subdued, as the volume of new export business flows fell for the third straight month and at the quickest pace since last December. China, the US, Japan, Germany and the UK were among the larger exporting nations to register reduced new export order intakes. (… )
The outlook for the global manufacturing sector remained potentially lacklustre in August. Business optimism remained below its long-run survey average and among the weakest over the past one-and-a-half years. The forward looking new orders-to-finished goods inventory ratio was also unchanged from July’s nine-month low. Manufacturers’ cautious outlook was also reflected in further reductions to purchasing activity and inventory holdings.
Average purchase prices rose for the thirteenth consecutive month in August, albeit to the weakest extent since May. Part of the increase in costs was passed on to clients, as highlighted by a further rise in average selling prices.
China Services Expansion Cools in New Sign of Economic Weakness
The Caixin China services purchasing managers’ index fell to 51.6 in August, versus 52.1 the previous month, according to a statement released by Caixin and S&P Global on Wednesday. (…)
“Competition in the sector was still fierce, and boosting sales through price cuts became a priority for businesses,” Wang Zhe, senior economist at Caixin Insight Group, said in a statement. “Surveyed companies adopted a cautious approach to hiring to save costs, leaving the labor market under pressure.” (…)
Official data published over the weekend showed service industries from restaurants to tourism near contraction during the last month of summer. The sector is at the center of piecemeal government action to revive consumer demand weighed down by a prolonged real estate crisis. (…)
The non-manufacturing measure of activity in construction and services eked out growth last month thanks to consumer appetite during the summer holiday season, the National Bureau of Statistics said on Saturday. Unlike the official services PMI, the Caixin survey focuses more on smaller private firms. (…)
Bloomberg omitted this important, more forward-looking, segment of the survey:
Service activity expansion was sustained by rising new business inflows in August according to the latest data. Chinese service providers often linked the expansion of new work to better underlying demand conditions and a widening of service offerings. In line with overall business activity, new work inflows expanded at a softer rate compared to July.
In contrast, export business increased at an accelerated pace. According to panellists, there was an uptick in overseas client interests, including in the tourism industry, which supported faster export business growth.
How Immigration Remade the U.S. Labor Force A historic influx of migrants has changed the size, makeup and outlook of the U.S. labor market and the economy.
Good article by the WSJ’s Paul Kiernan, supplementing my arguments that surging immigration helped “normalize” the U.S. labor market (see Lucky Fed!).
(…) Immigrants who have arrived since the start of 2020 face higher jobless rates than the broader population. Unemployment for recent immigrants averaged 8.2% between May and July, versus 4.2% for American-born workers and 3.5% for earlier immigrant cohorts. Overall unemployment has crept up this year, to 4.3% in July, in part due to the swelling numbers of immigrants looking for jobs.
Recent immigrants tend to earn less than U.S.-born workers because of their lower level of education, lack of English, and in some cases because they are working without permission. They might also compete with existing workers with less education and put downward pressure on their wages, too. Through these channels, the surge in immigration could weigh slightly on overall wages and productivity in the near term, according to the CBO.
However, the drag fades over time as migrants gain experience, and those with college degrees contribute to innovation, the CBO says. And from the day they start working, migrants pay federal taxes, helping to reduce the federal deficit. (…)
For Volkswagen, the Bumpy Road to Electric Vehicles Starts to Hit Home The auto giant is considering cuts it has long avoided in Germany as it contends with tepid interest in a high-cost technology.
(…) Group Chief Financial Officer Arno Antlitz blamed the poor result squarely on the poor postpandemic recovery. “In Europe, two million fewer vehicles are currently sold than before Covid,” he said.
However, a big bet on electric vehicles under former CEO Herbert Diess with products such as the ID.3 and ID.4 is another reason for today’s weak profitability, according to analysts.
“There are plants dedicated to EVs that aren’t producing at the levels expected and costs are out of whack,” said Bernstein analyst Stephen Reitman.
A few days before Volkswagen announced its December deal with the union, the German government unexpectedly canceled EV subsidies. The technology has struggled to win over fresh cohorts of buyers who may be wary of patchy public charging infrastructure and high prices.
EV sales in Germany, where Volkswagen is the market leader, fell by a fifth in the year through July, compared with the same period of 2023. (…)
The company also needs to compete with lower-cost, faster-moving Chinese EV makers, not just in China but increasingly in Europe too. Chinese manufacturers have a cost advantage of as much as 30%, according to industry estimates. (…)
BYD, the Chinese brand that last year overtook Volkswagen in China, is still a marginal player in Europe, but it is growing fast and spending lavishly. This summer it sponsored the high-profile Euro 2024 soccer tournament and last week agreed to buy its German distributor. (…)
In his statement, Blume noted that “Germany in particular as a manufacturing location is falling further behind in terms of competitiveness.”
Labor costs in Germany are the highest in Europe, according to an analysis by the German Association of the Automotive Industry. A German auto worker cost roughly €62 an hour last year—equivalent to roughly $68.50—compared with €23 for a Czech worker and €29 for a Spanish one. In Hungary, where BYD is building a factory to avoid European Union tariffs, auto workers are paid only €16 an hour.
Germany’s energy costs also have risen since the country lost access to cheap Russian pipeline gas as a result of the war in Ukraine. (…)
Axios has this important factoid:
VW is also a bloated company compared with its competitors, meaning it has less margin for error. The company had some 684,000 employees in 2023. That’s about 309,000 more than the ever-efficient Toyota, which sold about 2 million more vehicles than VW worldwide last year.
Meanwhile
China EVs, Hybrids Set to Cement Sales Lead Over Gasoline Cars
Sales of electric and hybrid vehicles in China likely surged in August, surpassing faltering deliveries of conventional gasoline cars for the second month in a row.
Sales of electric and plug-in hybrid vehicles rose 42% year-on-year to just over a million units, according to preliminary data from China’s Passenger Car Association Wednesday. Overall vehicle shipments meanwhile shrank 1% from the same period last year to 1.9 million units. Sales of EVs and hybrids are expected to be 53% of the total in the month. (…)
The strong momentum in the EV segment for what is normally a slow period for car production and sales comes after the government doubled subsidies for trading in old vehicles at the end of July. Buyers who purchase qualifying new EVs or gasoline cars can receive up to 20,000 yuan ($2,811).
EV makers benefited from the boost. Stellantis partner Zhejiang Leapmotor Technologies Ltd.’s August sales surged 113% compared with the same time last year, and premium brand Zeekr grew 46%. Market leader BYD Co. increased deliveries in August by 30% to 370,854 vehicles.
Yuqian Ding, head of China autos research at HSBC Qianhai Securities Ltd., said BYD’s monthly volumes into September and October will continue to be robust with its strong new model supply, expanding overseas footprint, and enhanced trade-in subsidy “likely to refresh new highs on monthly deliveries.”