Expansion of Global Manufacturing Production at weakest since July 2003, as contractions in the US and Japan offset robust growth in China and India

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Expansion of Global Manufacturing Production at weakest since July 2003, as contractions in the US and Japan offset robust growth in China and India
By Finfacts Team
Nov 6, 2007, 06:49

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Source: NTC Economics

October PMI data pointed to the weakest growth of global manufacturing output for fifty-one months, following a further slowdown in the rate of expansion of incoming new orders.

The JPMorgan Global Manufacturing PMI (Purchasing Managers' Index)– a composite indicator designed to provide a single-figure snapshot of operating conditions in the global manufacturing sector – fell to 51.9 in October, down from a figure of 52.6 in September, its lowest level since May 2005.

At 52.5 in October, the Global Manufacturing Output Index posted a reading above the neutral 50.0 mark for the fifty-fourth month running.

However, the rate of growth slowed to its weakest since July 2003, largely as a result of slight contractions in output in the US (first for nine months) and Japan (third decline in the past four months). Growth eased sharply in the Eurozone and the UK, reaching twenty-six and nine-month lows respectively. Asia-Pacific (excluding Japan) was the only major industrialized region covered by the survey to exhibit any noticeable strength in October, with growth of production at its fastest since April 2004 in China, reaching a near four-year high in Australia, and a survey-record high in India. Output in Brazil also rose at a survey record pace.

The main factor underlying slower growth of manufacturing production was a further easing in the rate of expansion of incoming new orders in October.

The Global Manufacturing New Orders Index registered 52.8, its lowest reading since May 2005. National PMI data indicated that strong growth of new work received in China and India was more than offset by slower rates of increase in the US (seven-month low), the Eurozone (only slight growth and the weakest during the current twenty-nine month period of expansion), the UK (fourteen-month low) and a moderate decline posted for Japan.

Growth of international trade volumes picked up slightly in October. This was especially evident in the US, where exporters benefited from the recent slide in the US dollar.

Global manufacturing employment increased for the twenty-ninth successive month in October, although the rate of jobs growth was only moderate and the weakest since March. The Global Manufacturing Employment Index posted 51.6, from 52.1 in September. Despite recording a contraction in output, the US saw faster gains in employment during the latest survey period. Jobs were also added in the Eurozone, Japan, China, the UK and India. The slower rate of increase in world manufacturing employment mainly reflected weaker gains in Japan, China and the UK.

Input cost inflation accelerated in October, as global oil prices hit record highs. The strongest rates of increase in average purchase prices were recorded for South Africa, Denmark, Japan and Russia. Inflationary pressure picked up in the US and China, but eased in the Eurozone, the UK and India.

Commenting on the survey, David Hensley, Director of Global Economics Coordination at JPMorgan, said: "The global manufacturing sector continued to slow at the start of Q4 2007, with the latest PMI data consistent with a rise in global IP of around 2% saar. Manufacturers are curbing production in response to a sharp slowing in the growth of new orders, which is focused in North America and Western Europe. Global demand growth is not expected to turn outright weak, which will put a floor under manufacturing activty, but expect growth to remain subdued into 2008."

The Global Report on Manufacturing is based on the results of surveys carried out in the USA by ISM, in Japan, Germany, China, the UK, France, Italy, Spain, Brazil, India, the Netherlands, Russia, Turkey, Austria, Poland, Greece, Ireland and Czech Republic by NTC Economics and in a number of other countries: Australia, Switzerland, Denmark, South Africa, Israel, Singapore, New Zealand and Hungary. These countries together account for an estimated 83% of global manufacturing output.

The Global Report on Manufacturing provides the first indication each month of global manufacturing business conditions, based on data collected from around 7,500 purchasing executives. It is compiled by NTC Economics.