Source: NTC Economics

At 51.4 in December, the JPMorgan Global Manufacturing PMI (Purchasing Managers' Index) fell to its lowest level for almost four-and-a-half years and signalled only a slight improvement in the overall health of the sector.

The PMI was dragged lower by a worsening in US manufacturing conditions, as the US PMI posted its lowest reading since April 2003 and fell below the 50.0 no-change mark for the first time in eleven months. Conditions strengthened slightly in the Asia-Pacific region, and steadied in the Eurozone, whereas the UK Manufacturing PMI lost the momentum it regained in November.

Rates of expansion in world manufacturing production and new orders both eased in December. The Global Manufacturing Output Index, which posted 52.2, and the Global Manufacturing New Orders Index, at 51.4, dropped to four-and-a-half year lows.

US manufacturing output declined for the second time in Q4 2007 in December, and at the fastest rate since March 2003, as the level of new orders received contracted at the sharpest pace in over six years. Although the decline in total order books was mainly centred on the domestic market, growth of new export business also eased noticeably. Employment fell for the second month in a row and stock holdings were cut back markedly.

The rate of expansion of manufacturing output held broadly steady in the Eurozone in December. However, growth disparities widened amongst the big-four euro area economies, as faster increases in France and Germany contrasted with near-stagnation in Italy and Spain.

December PMI data indicated that conditions strengthened in the Asia-Pacific region, with output expanding at faster rates in Japan, China, India and Australia. These nations also saw sharper increases in new orders. Growth was especially robust in India, where new work rose at a survey record pace.

After accelerating sharply in November, input price inflation gained additional pace in December. The Global Manufacturing Input Prices Index posted 67.2, up slightly from 67.0, to reach a six-month high. Cost inflation picked up in the US (fastest since June), China (up noticeably to a new survey record peak) and Brazil. Rates of increase moved broadly sideways in the Eurozone and India, and fell back moderately in Japan and the UK.

At 50.9 in December, the Global Manufacturing Employment Index remained above the no-change mark of 50.0 for the thirty-first successive month. Jobs were added in the Eurozone and the UK, both at their fastest rates during Q4 2007, and Japan (six-month high). Manufacturing employment fell in the US and was broadly unchanged in China.

Supply-side pressures continued to build in December. The Global Manufacturing Suppliers' Delivery Times Index posted 46.4, its lowest reading since January 2007 and a level indicative of a marked deterioration in average vendor performance. Lead-times lengthened in the US, the Eurozone, Japan, China, the UK, Brazil and India.

Commenting on the survey, David Hensley, Director of Global Economics Coordination at JPMorgan, said: "The global manufacturing sector ended 2007 on a weak footing. Production and new business rose at their slowest rates for four-and-a-half years in December, and this lacklustre trend is likely to continue into Q1 2008.

Jobs are still being created, although the labour market is also exhibiting less buoyancy than earlier in the year. Cost inflation gained strength, reaching a level only slightly below its June peak."