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Could Global Manufacturing Activity Improve as It Enters 3Q17?

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Global manufacturing activity

The JPMorgan Global Manufacturing PMI (purchasing managers’ index) remained stable at 52.6 in June 2017, according to the IHS Markit report released in July. A consistent number indicates steady improvement in global manufacturing operating conditions in June compared to May.

The improved economic growth expectations and increased global trade seemed to be helping the manufacturing sector’s performance in the second half of 2017. The expectations for the next 12 months in most of the economies also look optimistic.

However, some of the headwinds, including protectionist stances and geopolitical uncertainty, could impact demand conditions that have supported the manufacturing sector’s performance in 2017. The chart above illustrates global manufacturing activity over the last year.

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Manufacturing sector performance

Global (ACWI) manufacturing activity had robust and steady growth throughout 2Q17. The average global manufacturing PMI for 2Q17 remained in expansionary territory as it stood at 52.7, but it was slightly lower when compared to 1Q17 at 52.9.

EU outperforms in 2017 so far

The developed markets outperformed the emerging markets in June 2017. The continuous improvement in the Eurozone manufacturing sector, with its PMI rising to its highest level in the last six years, resulted in improved activity in the developed market.

The rate of expansion accelerated in almost all Eurozone nations in June 2017, except Spain. The strongest growth was seen in Austria, Germany, and the Netherlands in June 2017.

The US (SPY) manufacturing PMI fell to a nine-month low, whereas Japan (EWJ) and the UK (EWU) saw three-month lows in June 2017.

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Emerging markets manufacturing improved in June 2017

The average rate of expansion for emerging nations (EEM) was higher in June 2017, mostly due to improvement in China’s (FXI) manufacturing PMI. Meanwhile, growth slowed in India (INDA), Brazil (EWZ), and Russia (ERUS). The worst manufacturing activity was seen in ASEAN[1. Association of Southeast Asian Nations] (ASEA) nations like Indonesia (EIDO) due to stagnant performance in June 2017.

We will look into the manufacturing PMIs of some of the emerging market economies in detail in this series. The manufacturing PMI helps us understand the economic backdrop of the manufacturing sector.

Sector performance

The investment goods sector showed the fastest growth, followed by the consumer sector in June 2017. In contrast, the intermediate goods category fell to a five-month low in June 2017.

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New orders and employment

The growth in new orders slowed to a seven-month low in June 2017, but it remained above the long-term average, according to the IHS Markit report in July. Employment increased at the fastest pace in June since February 2017.

Cost pressures

On the price front, input costs grew at the slowest pace in June 2017 since September 2016. The output costs accelerated for the first time in four months in June.

Let’s look at the China’s manufacturing activity in our next article.

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