Markit: Manufacturing Output Shrinks in China and Europe, Slows in the U.S.

By May 23, 2013Economy, General

The latest Markit purchasing managers’ index (PMI) data reflect slower manufacturing activity worldwide in May, continuing a trend that we saw in April. Last month, the Chinese economy slowed surprisingly, with the HSBC China Manufacturing PMI falling from 51.6 in March to 50.4 in April. Now, we see that the Flash measure has fallen further to 49.6 in May, its first contraction since October. A decline in new orders, with the sales index down from 51.7 to 49.5, was largely responsible for the decrease in the larger index. Exports, employment, and inventories were also lower. With that said, overall manufacturing output was only off slightly (down from 51.1 to 51.0), with very modest growth.

While the Chinese decline was unexpected, the European data have been in contracting levels since August 2011, and it is not expected to emerge from its recession any time soon. Nonetheless, the Markit Flash Eurozone Manufacturing PMI did improve somewhat from 46.7 in April to 47.8 in May, even as it remains in contraction for the 22nd consecutive month. The pace of new orders (including exports) and output slowed in the month, helping to ease the rate of decline. The bottom line, though, is the fact that production and employment in the manufacturing sector are falling. The survey also indicates that selling prices among manufacturers are also decreasing, with deflation occurring each month so far in 2013.

In contrast to China and Europe, manufacturing activity in the United States is growing, but very slowly. The Markit Flash U.S. Manufacturing PMI edged marginally lower from 52.0 in April to 51.9 in May, decelerating for the fourth straight month. This easing appears to have erased the stronger growth that we saw in the U.S. at the beginning of the year, when the PMI was 56.1.

The slowness that we are seeing in the global economy, as seen above, has had an impact on the U.S. manufacturing sector and the sentiment of those taking the PMI survey. In fact, new domestic orders picked up slightly (even as they have declined from recent months), with its index rising from 51.8 to 52.8. What is bringing the larger PMI index lower in May was exports. The index for new export orders declined from 52.2 (modest growth) to 49.4 (a slight contraction). Meanwhile, the pace of growth for output and employment both slowed down for the month, but was still higher.

Overall, though, it is clear that manufacturing activity has slowed worldwide. Even with U.S. data showing growth, the pullback in new orders and output since the beginning of the year are noticeable. The new orders index in January was 57.7, putting the 52.8 reading of May in perspective. Slower growth in export sales has had an impact, but higher payroll taxes and other challenges have also dampened growth domestically.

Several economic indicators of late have shown significant weaknesses in the manufacturing sector, including this one. Last week, for instance, we learned that manufacturing production is up just 1.3 percent year-over-year, a pace that is clearly unacceptable. We need the global economy to improve, but we also need pro-growth policies in the U.S. that will once again get this sector moving again.

Chad Moutray is the chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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