Is Global Manufacturing Slowing to Recessionary Levels?
Today the Institute for Supply Management released its July 2011 manufacturing report for the U.S., which showed that economic activity in the manufacturing sector expanded in July for the 24th consecutive month, and the overall economy grew for the 26th consecutive month. However, the purchasing managers index, or PMI, registered slowing growth, down 4.4 percent from June to 50.9 percent. Anything below 50 would be a contraction. Production and employment also continued to grow, but at a slower pace.
The New Orders Index came in at 49.2, its first contraction since June 2009. The rate at which prices have increased declined in July for the third consecutive month. Over the last three months, the Prices Index has fallen from 85.5 to 59.0. Despite falling prices, domestic demand is down in the short term, though export orders continue to be strong.
Europe’s manufacturing sector also fell flat in July, with member states of the EU growing at their weakest pace since emerging from the recession. Even France (NYSE:EWQ) and Germany (NYSE:EWG), which have propped up growth in the euro zone, showed slowing growth in July, while Spain witnessed continuing declines. The Markit Eurozone Manufacturing PMI fell to 50.4 in July, down from 52.0 in June. Ireland’s PMI contracted for the second consecutive month.
Factory activity slowed in China (NYSE:FXI) last month as global demand weakened. HSBC (NYSE:HBC) PMIs for China, Taiwan, and Russia all contracted in July. According to HSBC, China’s PMI fell to 49.3 points in July from 51.6 in June, while the Chinese government maintains its manufacturing sector expanded in July, but at its slowest pace in over two years, falling from 50.9 to 50.7. The HSBC PMI favors the private sector, while the government’s official PMI favors the large state-owned firms that have fared better amid skyrocketing inflation. China’s new export growth hit its lowest level in 17 months, though overall new orders grew at a faster rate in July than June, possibly signaling a turnaround.
Factories in India (INF) continued to expand in July, but at their slowest pace in 20 months, dropping from 55.3 in June to 53.6 in July. According to HSBC, new export orders fell at their fast pace in the last 29 months. Taiwan’s new export orders fell for the first time in nine months, and the manufacturing sector contracted at its fastest monthly rate since January 2009. Conversely, South Korea’s rate of expansion actually increased in July for the first time in seven months on increasing new export orders.