Global manufacturing: Still bottoming out

Global manufacturing PMI picks up slightly, but remains in contraction mode

Over the past week, September manufacturing PMIs for various developed markets (DMs) and emerging markets (EMs) have been published. The global manufacturing PMI picked up slightly in September, to 49.1 (August: 49.0), remaining below the neutral 50 mark separating expansion from contraction. This time, the improvement was driven by DMs, with the aggregate DM index rising to a four-month high of 47.4 (August: 46.8). Amongst DMs, the manufacturing PMIs is on the rise in the US, but stayed particularly weak in the eurozone, including the Netherlands, and the UK.

Meanwhile, the aggregate index for EMs fell back to 50.9 (August: 51.4). We had already argued that the pick-up in the global manufacturing PMI (by 0.4 points) in August looked a bit of an exaggeration (see here), as it includes Caixin’s index for China – and last month, Caixin’s index did much better than China’s ‘official’ manufacturing PMI. And indeed, one month later the divergence between these two indices has narrowed (see our comment on China’s September PMIs here).

As we indicated last month, we expect any rebound in global manufacturing to be modest in the coming months, given that we expect a significant slowdown in the US, and ongoing economic sluggishness in the eurozone. That said, stimulus to investment via the US’s Inflation Reduction Act and Europe’s recovery fund may help to offset (to some extent) the drag from weaker consumption. A bottoming out of domestic demand in China, following ongoing piecemeal monetary easing and the stepping up of targeted support, particularly for real estate, should also help.

Global components for input and output prices are rising, but stay well below peak levels

Looking at the subcomponents of the global manufacturing PMI, we see slight improvements at both the supply and the demand side. On the supply side, the global output subindex rose to 49.7 (August: 49.4), with the DM index at 47.6 (August: 46.7) and the EM index at 52.0 (August: 52.2). On the demand side, the global component for new orders rose to 48.4 (August: 48.1), with the EM index (51.5) clearly higher than the DM index (45.4). The global export orders component picked up to a five-month high of 47.7 (August: 47.0), although remaining clearly below the neutral 50 mark – in line with ongoing weakness in the latest CPB numbers on global trade volumes.

The fact that supply conditions look stronger than demand conditions is also consistent with the development in delivery times and our global supply bottlenecks index, which remains clearly in ‘supply abundance’ territory. Notwithstanding this, the global subcomponents for input and output prices rose for the third consecutive month in September, although remaining far below the peaks seen during 2021 and 2022. This is likely partly the result of a recent pick-up in energy prices.