There are signs that manufacturing activity is picking up worldwide, with Europe’s recession coming to an end and China’s recent slowness stabilizing. Even in the U.S., we are seeing modest growth as we begin the third quarter, accelerating from soft patch seen in the spring months. The Flash – or preliminary – data from Markit released this morning tend to back up this view. Flash data use 85 to 90 percent of the total survey responses, with a final report being released in a couple weeks.
After contracting for 3 straight months, manufacturing activity in China edged just above neutral in August. The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) rose from 47.7 in July to 50.1 in August. This was just above the threshold of 50 which signifies expansion in the sector, and it suggests that China’s recent weaknesses have begun to stabilize. This is consistent with the most recent Chinese data on industrial production, which also suggested a bit of a turnaround.
Looking specifically at the PMI data, growth in sales and production helped to lift overall activity higher. The index for new orders improved from 46.6 to 50.5, and the output index rose from 48.2 to 50.6. In each case, this was the first increase on net since April. With that said, some of the challenges for Chinese manufacturers continue. For instance, export sales weakened further, down from 47.7 to 46.5, and hiring remains negative, even as the pace of the decline eased, up from 47.3 to 49.1. Nonetheless, the report in total tends to support the view of continued growth in manufacturing moving forward.
Meanwhile, in Europe, the economy continues to emerge from its two-year recession. The Markit Eurozone Manufacturing PMI increased from 50.3 in July to 51.3. This was the second consecutive month of expansion, reversing 23 straight months of contraction in the PMI readings. In fact, this was the highest reading since June 2011. Similar to the Chinese story discussed above, these data indicate that Europe’s economic problems are beginning to stabilize, even as challenges remain and overall growth remains somewhat low, where it will be for the foreseeable future. With that said, the simple fact that Europe has begun to grow again has provided a huge psychological boost to the continent.
The European manufacturing activity figures were mostly higher in August, with growth in new orders up from 50.4 to 53.4. Exports (up from 50.9 to 53.6) and output (up from 52.3 to 53.4) also increased. One area that remains weak is hiring – generally a lagged indicator – which declined from 49.1 to 48.2. The employment index has yet to return to positive territory, with its last positive reading occurring in January 2012.
On a country basis, Flash PMI data were Germany (up from 53.8 to 55.3) and France (down from 51.4 to 48.6) moved in opposite directions. Germany’s improved economics have boosted the European figures; whereas, France continues to struggle.
Closer to home, the Markit Flash U.S. Manufacturing PMI edged somewhat higher, up from 53.7 in July to 53.9 in August. After slowing to 51.9 in May, the Markit PMI data have pickup up since. Note that the competing Institute for Supply Management (ISM) data on manufacturing activity was negative in May, with a surprisingly sharp increase in its July report. In each case, manufacturers in the U.S. are growing modestly, with cautious optimism for the coming months.
In this latest Markit survey, the news was mostly positive. The index for new orders rose from 55.1 to 56.5, a figure which should bode well for growth moving forward. Employment and exports were also higher. Output continued to expand, but at a slightly slower rate, down from 54.0 to 53.4.
The final data for each of these Markit PMI surveys will include all information, with the releases for China and the Eurozone slated for September 2 and for the U.S. on September 3. The ISM manufacturing activity report the for U.S. for August will also be released on September 3.
Chad Moutray is the chief economist, National Association of Manufacturers.
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