U.S. and Global July Purchasing Managers Indexes Reflect Caution

Both the U.S. Purchasing Managers’ Index and the JP Morgan Global PMI reflect a cooling of sentiment due to shortages.

“The July Manufacturing PMI® registered 59.5 percent, a decrease of 1.1 percentage points from the June reading of 60.6 percent,” noted Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. “This figure indicates expansion in the overall economy for the 14th month in a row after contraction in April 2020…Business Survey Committee panelists reported that their companies and suppliers continue to struggle to meet increasing demand levels. As we enter the third quarter, all segments of the manufacturing economy are impacted by near record-long raw-material lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products. Worker absenteeism, short-term shutdowns due to parts shortages and difficulties in filling open positions continue to be issues limiting manufacturing-growth potential. Optimistic panel sentiment remained strong, with 13 positive comments for every cautious comment.”

The global manufacturing sector expanded at a robust clip at the start of the third quarter. However, rates of increase in output and new orders eased again, as record supply chain
constraints stymied growth and drove up input prices. The challenging operating environment hit confidence, which dipped to a nine-month low.

The J.P.Morgan Global Manufacturing PMI™ – a composite index produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM – posted 55.4 in July, a tick below the 55.5
registered in June. The headline PMI has signalled expansion in each of the past 13 months. Improvements were seen across the consumer, intermediate and investment goods
industries. The consumer category saw the weakest increase overall, but was the only sector to register faster growth.

Out of the 29 nations for which July data were available, 22 saw growth during the latest survey month. The eurozone remained a bright spot, with the three highest-ranked
countries based on PMI readings (the Netherlands, Germany and Austria) all located in the currency bloc. The US was in fourth place overall. PMI readings for China (50.3) and Japan
(53.0) were well below the global average.

Emerging markets tended to underperform compared with developed nations in July, continuing a trend observed over the past eight months. The emerging Asia region was
especially weak, containing five out of the seven nations seeing contractions (Thailand, Malaysia, Vietnam, Indonesia and Myanmar).

Likewise, shortages are a problem in the U.K. Following the release of the latest UK Manufacturing PMI on 2 August, Alastair Wilson, Partner at MHA, expressed the belief that the recent removal of the final lockdown restrictions in England will continue to spur consumption and growth, but rising shipping costs and the ‘pingdemic’ are a concern:

“With the full easing of Covid-19 restrictions now starting to take effect, UK manufacturers are continuing to reap the benefits of pent up demand driven by the majority of Brits choosing to ‘staycation’, coupled with renewed economic confidence which is boosting consumer spending and investment.

“Many manufacturers are in a relatively robust financial position having remained open through large parts of previous lockdowns and having continued to see steady demand, which is now soaring. Business owners are cautious about overextending capital commitment, however we’re seeing a greater willingness to invest in new production facilities and equipment, supported by recent incentives such as capital allowances.

“While benefitting from increased demand, manufacturers are now facing the challenge of substantially increased shipping costs, in addition to disruption from staff having to isolate due to the ‘pingdemic’. Staffing costs are also rising as demand for workers intensifies, leading to labour shortages in certain areas, such as in particular in the food manufacturing and automotive sectors, and greater powers for workers to demand pay increases. This is leading to higher production costs at the factory gate and price rises becoming more commonplace. However we would expect the buoyant results of recent PMI to continue over the next few months.”

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