GLOBAL MANUFACTURING : HOW STRONG A RECOVERY ? / RGE MONITOR ( RECOMMENDED READING )

Global Manufacturing: How Strong a Recovery?

Surveys suggest that global manufacturing activity continued to expand in November 2009 with growth in output, orders and the overall PMIs accelerating in many countries. The pace of expansion has slowed, however, indicating that the recovery could be softening. The U.S., EMU, China and Japan all continued to record expansions. South Africa and Italy are among countries that crossed back into expansion territory while Spain and Russia continue to see contraction in manufacturing.

•JPMorgan/Markit's global PMI was 53.6 in November, its fifth consecutive month in positive territory, but it was down slightly from the 54.4 posted in October, a 39-month high. Production and new orders continue to climb but at a slower pace than in October. Job losses, meanwhile, gained momentum for the first time since February, with Western regions outside of the U.S. posting declines and emerging markets adding jobs. The new orders-to-inventory ratio rose slightly, which suggests gains in production should continue. (12/01/09)

•U.S. The ISM manufacturing index showed an expansion in manufacturing activity for the fourth consecutive month in November 2009, after declining for 18 consecutive months through July 2009. However, the pace of expansion eased in November, with the manufacturing index falling to 53.6 from 55.7 in October. (readings above 50 signal expansion) 12 of the 18 industries included in the survey showed expansion in November. The expansion was driven by strength in new orders, rising to 60.3 from 58.5 in October, while exports rose to 56 from 55.5 in October. Production continued to expand at a slower pace, with a reading of 59.9 in November. The index for employment showed expansion for the second consecutive month in November after 14 consecutive months of decline, though the pace of expansion moderated in November. Inventories contracted at a faster pace, while the strength in prices paid eased significantly in November, falling to 55 from 65 in October. (Institute for Supply Management, 12/01/09)

•China: The official PMI held steady in November, but the HSBC (formerly CLSA) PMI climbed again, and both were above the 55 level. Both the official PMI, which best indicates state-owned enterprises' conditions, and the HSBC PMI, which includes smaller companies, have been above the 50 mark for at least eight months. The most recent data suggest that both heavy and light industries are showing signs of improvement, unlike earlier this year when heavy industry dominated. Input prices rose sharply in November, according to both PMIs, suggesting manufacturers may face cost pressures in the coming months. (12/01/09)

•EU: Eurozone manufacturing PMI continued to climb in November to 51.2 from 50.7 in October. November was the second month in expansion territory and output continued to increase with the index reporting 54.8, the highest in over two years. BNP notes that external demand has been quite supportive, as have incentives. However, the survey shows "some signs of growth peaking" including a declining orders-inventories ratio. Meanwhile still weak domestic demand and a deteriorating labor market are risks. (12/01/09) German PMI continued to climb to 52.4 from 51, French PMI softened to 54.4 and Italy finally slipped into expansion territory.

•Japan: The Japanese Manufacturing PMI slowed for the second month, "highlight[ing] a growing divergence between Japan and China" as Japanese domestic demand remained very sluggish. The strong yen may be "undermining Japanese competitiveness," and demand for more expensive Japanese-made electronics is weaker. Across Asia, only China saw an acceleration in output growth. (12/01/09)

•Canada: The Ivey PMI rose to 55.7 in August 2009, its second highest since September 2008 when it was around 61. The Index fell to a low of about 35 in January 2009 and has zigzagged mostly upwards throughout 2009. The Ivey PMI for Canada which is not seasonally adjusted and tracks only an increase in spending from the previous month. The Canadian manufacturing sector has been contracting and shedding jobs for several years but output has stabilized in recent months.

•India: The PMI fell to 53.2 in August from 55.4 in July but the index remained above the threshold of 50 for the fifth consecutive month signaling expansion. The new orders and output indexes increased but the employment index decreased. The improvement in PMI has mainly come from domestic demand since export orders are subdued. Industrial production rose 7.8% y/y in June 2009 after rising 2.2% y/y in May 2009.

•Brazil: Industrial production was better than expected in July (-9.9% y/y vs. consensus -10.5% y/y). On a seasonally adjusted basis IP increased 2.2% m/m. The PMI rose to 50.6 in August 2009, with domestic orders providing the most demand while new export orders continued to fall.

• Russia : The PMI remained in contraction territory (49) in November for the second consecutive month, after recording a level of 52 in September. Output and new orders slipped on higher costs. Export orders have outpaced overall orders, suggesting that external, not domestic demand is driving the recovery, and a lack of investment should be a drag on growth. Russia's industrial output rose on a m/m basis in June and July but fell in August. Output continued to climb but new coming orders and employment fell. According to Dmitri Fedotkin of VTB, "the decrease in domestic producers’ competitiveness arising from the recent RUB appreciation" accounted for the decline in EU demand.

•South Africa: In November, South Africa's PMI finally crossed into expansion territory for the first time in 1.5 years. South African manufacturing has been slow to recover, remaining below the deep contraction level of 40 until September of 2009. Already, South Africa's manufacturing output began to climb on a q/q basis in Q3 2009, helping bring the economy out of recession.

•Emerging Europe: PMIs have continued to increase in Central and Eastern Europe but remain below the 50 threshold. Lars Rasmussen of Danske advocates "gradual industrial recovery being the baseline scenario for EMEA going into 2010, but the outlook is still rather fragile and the fun could easily be spoiled." Turkey by contrast continues to see a revival.
Dec 2, 2009