Category Archives: Manufacturing

5/4/21: Heating up inflationary risks

 

No, hyperinflation and, in fact, high inflation, ain't coming, yet. But the concerns with both are rising... 


Both, input prices and output prices have accelerated in March, compared to February in Markit's Manufacturing PMIs. 

Headline Markit statement says: "Conditions in the global manufacturing sector continued to brighten at the end of the first quarter, despite the potential for growth to be stymied by rising cost inflationary pressures and supply-chain disruptions." (Emphasis is mine).  And more: "Demand outstripping supply also contributed to a marked increase in purchasing costs during March. Input price inflation surged to a near-decade high, the pass-through of which led to the steepest rise in output charges since data on selling prices were first tracked in October 2009."

The same is happening in the U.S.: "Supplier lead times lengthened to the greatest extent on record. At the same time, inflationary pressures intensified, with cost burdens rising at the quickest rate for a decade. Firms partially passed on higher input costs to clients through the sharpest increase in charges in the survey's history."


5/4/21: BRIC’s Manufacturing PMIs: 1Q 2021

 

Given a lot of noise about economic re-opening and abatement of the late 2020 wave of the pandemic, we expected BRIC countries PMIs to improve significantly in 1Q 2021 compared to 4Q 2020. Alas, the opposite took place:


  • Brazil Manufacturing PMI fell from 64.1 in 4Q 2020 to 55.9 in 1Q 2021. All three months of 1Q 2021 came in sub-60 (all three months of 4Q 2020 were above 60) and March 2021 was the lowest monthly reading since June 2020.
  • Russia Manufacturing PMI slipped from 51.5 in February to 51.1 in March. On quarterly basis, Russia Manufacturing PMI actually managed to rise from a recessionary reading of 47.6 in 4Q 2020 to a weak recovery reading of 51.2 in 1Q 2021. This is the highest reading since 1Q 2019 and the first above-50 reading since the end of 2Q 2019. Russia was the only BRIC economy posting increasing PMI in Manufacturing sector in 1Q 2021, and at that, the improvement went to anaemic growth from pretty steep contraction.
  • China Manufacturing PMI disappointed, falling from 53.8 in 4Q 2020 to 51.0 in 1Q 2021. Given structural importance of Chinese manufacturing globally, this implies a further build up in orders backlogs in the global supply chains, signaling more inflationary pressures down the line. On a monthly basis, March 2021 posted fourth consecutive decline in monthly PMIs, with March reading of just 50.6 - statistically, basically indistinguishable from zero growth conditions in the sector.
  • India Manufacturing PMI fell from 57.7 and 57.5 in January and February 2021 to 55.4 in March 2021, marking the slowest monthly rate of growth since August 2020. On a quarterly basis, India Manufacturing PMI fell from a hard-to-believe rate of expansion of 57.2 in 4Q 2020 to still robust growth of 56.9 in 1Q 2021.
Brazil and India were the two BRIC economies that managed to outperform global manufacturing sector growth in 1Q 2021 which came in at 54.1, up on 53.5 in 4Q 2020.

Global GDP-weighted BRIC group Index of Manufacturing Activity that I calculate based on Markit data fell from from 54.8 in 4Q 2020 to 52.8 in 1Q 2021, reaching the lowest reading since 2Q 2020 when it was at 45.0. Whilst BRIC group Index of Manufacturing Activity outperformed Global Manufacturing PMI in every quarter between 1Q 2019 and 4Q 2020, it fell below the global measure in 1Q 2021.

5/1/21: Ireland PMIs: 4Q 2020

Ireland's economic activity improved significantly in December, and the improvements were marked across all three sectors:

  • Ireland's Manufacturing PMI rose 52.2 in November to 57.2 in December, marking the third consecutive month of > 50 readings, the second consecutive month of indicator being statistically above 50.0 line. The last three months average (53.23) is on 2Q 2020 average (53.30) and this is pretty encouraging, given the weakness in the indicator over 1H 2020. 
  • Ireland's Services PMI also rose in December, reaching 50.1 from recessionary 45.4 in November. 4Q average is still weak at 47.9 (contractionary) after being effectively stagnant at 50.03 over 3Q 2020. Monthly increase in December, however, is a brighter spot.
  • Ireland's Construction sector PMI (data through mid-December) is at 53.5, which is strong compared to month prior (48.6) and the first time the index is above 50 line since July 2020. 
  • Official Composite PMI that accounts only for two sectors of activity (Manufacturing and Services) is now at 53.4, having broken above the 50.0 line for the first time since August 2020.

As you know,  I calculate my own index of economic activity based on all three sectors PMIs and using relative weights of each sector in Irish Gross Value Added, based on the latest National Accounts data. This is plotted against Markit's Composite PMI in the following chart:

Just as Composite PMI, my index of economic activity also rose in December (to 52.9) from 48.2 in November. This marks the first month of above-50 readings after 3 consecutive months of contraction. Nonetheless, 4Q 2020 index is at 50.03 - signaling zero growth q/q and this stands contrasted to 3Q 2020 reading of 51.2 (statistically zero growth, nominally, weak positive growth).

4/1/21: BRIC: Manufacturing PMIs 4Q 2020

Latest data for BRIC Manufacturing PMIs indicates three countries outperforming global rate of recovery in manufacturing sector, against one country (Russia) remaining in contraction territory and well below global growth mark.


On a quarterly basis,

  • Brazil's Manufacturing PMI stood at 64.1 in 4Q 2020, up on 62.6 in 3Q 2020, marking the second highest and the highest reading on record. The contraction in 2Q 2020 (with PMI at 42.0) was sharp, but not as sharp as in 1Q 2009. By these comparatives, GFC-related contraction of 2008-2009 resulted in 4 quarters average reading of 45.1 and saw three consecutive sub-50 readings. The Covid-19 related contraction was stretched only across one quarter, with 4 quarters average of 54.8 in 2020. It is, genuinely, hard to reconcile these numbers with reality of the Covid-19 crisis.
  • Russia Manufacturing PMI slipped to 47.6 in 4Q 2020 from 49.5 in 3Q 2020, marking sixth consecutive quarter of sub-50 readings. Statistically, Russian Manufacturing posted no growth (> 50 readings) in seven consecutive quarters. Over 2020 as a whole, Russian PMIs averaged abysmal 46.0, compared to the GFC and the Great Recession average of 2008-2009 of 44.7.
  • India Manufacturing PMI was at 57.2 in 4Q 2020, up on 51.6 in 3Q 2020, and averaging 49.5 for the year as a whole. During the GFC and the Great Recession period, India's PMI averaged at 51.1. Unlike Brazil, India is yet to recover to pre-Covid-19 levels of activity.
  • China Manufacturing PMI finished 2020 with a reading of 53.9, averaging 51.1 over 2020 as a whole, with overall PMIs performance suggesting that Chinese industrial producers have recovered from the Covid-19 pandemic by the end of 2020. China's Covid-19 experience has been more benign than the country contraction during the GFC and the Great Recession (46.9 average).
Global Manufacturing PMI stood at 53.5 in 4Q 2020 and an average of 49.3 over 2020 as a whole, against BRIC's Manufacturing Index (weighted by relative global GDP shares of the four economies) at 54.9 in 4Q 2020 and 50.5 for 2020 as a whole. In other words, BRICs have supported global growth to the upside during the Covid-19 pandemic. 

3/12/20: Ireland PMIs: November

 

Ireland PMIs are out for November and they show the impact of the re-amplification of COVID19 impacts on the economy.

Services PMI fell from 48.3 in October to 45.4 in November, the lowest reading in 5 months and the third consecutive monthly reading sub-50. The pandemic period average is now at 39.3.

Meanwhile, Manufacturing PMI rose from 50.3 in October to 52.2 in November, marking the second consecutive month of readings above 50.0 mark. Pandemic period average is now at 48.2. 

Construction sector PMI (through mid-November) is at 48.6 - marking third consecutive month of sub-50 readings.

As the chart below illustrates, Manufacturing is the only sector that is providing growth momentum in the economy and much of that is down to multinationals. In services sector, activity of multinationals (which are doing well) is more than offset by continued declines in activities of domestic enterprises. 


Composite PMI posted a third consecutive month of sub-50 readings at 47.7 down from 49.0 in October. Markit's Composite PMI is calculated based on manufacturing and services indices. To rebalance the overall activity measure to include construction PMIs, I calculate my own 3-sectors index which is based on each sector contribution to Ireland's gross value added. With economic activity shifting toward manufacturing during the Covid19 pandemic, this index is becoming more weighted to reflect manufacturing sector PMI, hence the 3-sectors index rose in November to 50.2 from 49.7 in October.


Overall, the PMIs and my 3-sectors index are all pointing to entrenchment of the Covid19 pandemic headwinds in the Irish economic activity in November.