Global manufacturing activity has stalled out

While you wouldn’t know it from the price action in markets of recent days, activity levels across the global manufacturing sector all but stalled last month.

The latest Markit-JP Morgan global manufacturing purchasing managers’ index (PMI) fell to 50 in February, hitting a fresh 39-month low in the process.

At 50, the index sits at the neutral level, that indicates activity levels neither expanded nor contracted compared to a month earlier.

MarkitWorryingly, the weakness was broad-based.

“The downturn in emerging nations accelerated to its fastest since last September, while growth across the developed markets slowed to a 33-month low,” Markit said in its report.

Like the headline index, the vast majority of the surveys subindices deteriorated from a month earlier.

“Manufacturing production and new orders both rose only slightly during February, with the respective rates of increase the weakest since the final quarter of 2012," Markit said. “The trend in international trade remained subdued, as levels of new export business contracted for the first time in five months. New export orders fell in the US, China, Japan, Taiwan and the UK, but rose in the eurozone, India, Malaysia, Vietnam and Brazil.”

With output and new orders growing at a slower pace, and export orders outright contracting, manufacturers were forced to lay off workers for the first time in five months.

Inventory levels also fell for the first time since August last year, largely as a consequence of weaker demand.

Suggesting that disinflationary pressures remain — at least in the industrial sector — both input and output prices continued to decline.

“There was a disparity between the trends in emerging and developed markets. Emerging nations registered a slight increase in costs – led by Russia, Mexico and Brazil – whereas developed nations saw input prices fall (on average) at the steepest pace in over six-and-a-half years,” noted Markit.

The impact of currency movements over the past year are clearly being felt, with the savage decline in emerging market currencies helping to boost prices temporarily. Still, with input prices in developed markets declining at the fastest pace in over six years, the improvement in developing markets looks to be a case of robbing Peter to pay Paul when it comes to the global disinflationary landscape.

The table below, supplied by Markit, reveals the internal movements within the February survey. It does little to bolster confidence.

Markit

David Hensley, director of global economic coordination at JP Morgan, suggests activity levels may contract in the months ahead without a near-term improvement in market conditions.

“The Global Manufacturing PMI posted at the stagnation mark in February, further highlighting the fragility of global industry at the start of the year," Hensley said. “Inflows of new business and production volumes barely rose, while the trend in international trade deteriorated. Market conditions will need to improve in the short run if global manufacturing is to avoid falling back into contraction.”

On Thursday, markets will receive the February report card for the global services sector, something that will be watched closely given the influence it has on economic growth and employment, particularly in developed nations.

Let’s hope the news on that front is a little more optimistic.

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