The global manufacturing expansion continued to gather momentum in January. Coming in at 56.1, up from 54.6 in December, the JPMorgan Global Manufacturing Purchasing Managersâ€™ Index registered its highest reading for five and a half years. The latest improvement in overall operating performance reflected accelerated growth of production and new orders, while there was a slight gain in staffing levels for the first time since March 2008.
Production increased for the eighth successive month in January, with the rate of expansion hitting a 69-month high. The improvement in the performance of the United States manufacturing sector was most noticeable. The Institute for Supply Management output index rose by 6.5 points since December to reach its highest level since April 2004.
Elsewhere the position was much more uneven, with West European and Japanese manufacturing having a much more qualified start to 2010, with rates of expansion growth well below the global average, – and in the case of some countries well below. Meanwhile emerging economies like Brazil,India and Turkey continued to show a strong performance.
Asia and Emerging Markets
In Japan activity slowed, although at 52.5, the seasonally adjusted Nomura/JMMA Purchasing Managersâ€™ Index pointed to a moderate improvement in operating conditions in the Japanese manufacturing sector at the start of 2010.
Commenting on the Nomura/JMMA Japan Manufacturing PMI data, Minoru Nogimori, Economist of Financial & Economic Research Centre at Nomura, said:
â€œThe Japan Manufacturing PMI fell 1.3 points to 52.5 in January. It remains above the key dividing line of 50.0, but has continued to fluctuate in recent months. Although the PMI has been holding firm, the sharp rebound phase from February through to August in 2009 has lost steam. Furthermore, the New Export Orders Index fell rapidly, by 3.2 points to 51.5, signaling that the yenâ€™s appreciation has depressed exports which are the main factor behind the current recovery in the Japanese economy. Exports are an important factor of the future of the Where an expansion of production was signalled, panellists generally attributed growth to higher intakes of new orders, which increased for the seventh month running in January. However, the latest improvement in firmsâ€™ order books was the slowest in that sequence amid concerns over the sustainability of economic growth. Export sales placed at manufacturers rose again in January, extending the current period of expansion to eight months. Nonetheless, the pace of expansion was the slowest since last June. Anecdotal evidence suggested that increased new business from China and other Asian countries continued to support export growth.
January data signalled that backlogs were depleted at the fastest rate since last June, largely as a result of slower new business growth and a robust rise in output.
Elswhere in Asia, both China and India showed strong expansions. At 57.4, up from 56.1 in the previous month, the headline HSBC China Manufacturing PMI rose to a record high at the start of 2010, signalling a continuing improvement in operating conditions in the Chinese manufacturing sector. The index has now risen more than sixteen points since posting a record low in November 2008. Export sales also rose in January, increasing at a near-record rate. This was in sharp contrast to the severe reductions seen at the beginning of 2009.
Commenting on the China Manufacturing PMI survey, Hongbin Qu, Chief Economist for China at HSBC said:
â€œIndustrial activity continues to accelerate, implying stronger GDP growth in 1Q. But rising input and output prices also point to greater inflationary pressure, which will likely prompt more tightening measures in the coming months.â€
The Indian manufacturing sector expanded at fastest pace for nearly one-and-a-half years in January. Climbing to 57.6 in January, its highest level for seventeen months, the seasonally adjusted HSBC Markit Purchasing Managersâ€™ Index signalled a considerable improvement in operating conditions faced by Indian manufacturers. The headline index has now signalled expansion of the sector since April 2009, and at increasing rates for the past two survey periods.
Commenting on the India Manufacturing PMI survey, Robert Prior-Wandesforde, Senior Asian Economist at HSBC said:
â€œAny lingering concern that India’s manufacturing recovery was tailing off should be well and truly put to rest by this strong release. A second consecutive rise in the PMI has taken the series to a new cycle high, consistent with on-going double digit rises in industrial production. The most impressive part of the release was the more than 5 point jump in the new export orders index, which took it to its highest level since October 2007 and indicated that the recovery is by no means dependent on domestic demand alone.
â€œAt the same time, however, price pressures are clearly intensifying. The rate of increase in input prices was the largest since the PMI began nearly 5 years ago, while the survey suggests that companies are more willing to pass on these rises in the form of higher output prices – something which the RBI is unlikely to take too kindly to. Admittedly, the employment index only inched above 50 but it can’t be long before job hiring picks up more aggressively.â€
Elsewhere among emerging economies, the Brazil performance stood out, with the sector expanding at a considerable pace as shown by the fact the headline seasonally adjusted Brazil Manufacturing PMI climbed to 57.8 in January, its highest level since data were first available in February 2006.
Commenting on the Brazil Manufacturing PMI survey, Andre Loes, Chief Economist, Brazil at HSBC said:
â€œThe Brazilian manufacturing industry expanded at a survey record pace in January. The Manufacturing PMI reached 57.8, up from Decemberâ€™s 55.8, with all five of its components supporting the strong performance of the composite indicator.
â€œIn our view, the particularly strong growth of output, new orders and input stocks â€“ all of them reached series record peaks â€“ indicate further vigorous expansions in manufacturing going forward. Employment also grew faster, but as a variable that normally lags production, its expansion fell short of the three components mentioned above. Last but not least, charges rose, albeit modestly, for the fourth month in a row.
â€œAll in, Januaryâ€™s Brazil Manufacturing PMI confirms the very favorable dynamics of manufacturing activity. This highlights the concern recently expressed by the BCB, that the quick reduction of idle capacity could result in increased inflation pressures.â€
While the South African PMI continued to show an increase in activity. The index surged to its highest level in 21 months in January, indicating that a recovery in manufacturing is gathering pace as consumer spending picks up, according to Kagiso Securities who prepared the report. The seasonally adjusted index increased to 53.6 from 52.5 in December. The PMI has now been above 50, which indicates an expansion in factory production, for three consecutive months.
In Europe, solid expansions in output were recorded in Sweden, France, Germany, the Netherlands and Austria, but these were in marked contrast to the deeper recessions in Spain, Ireland and Greece.
The Eurozone PMI hit a two-year high, with France and Germany leading the recovery, while Spain and Greece fell further behind. The headline final Eurozone Manufacturing PMI â€“ a composite index based on measures of production, orders, employment, inventories and supplier performance â€“ posted 52.4 in January, its highest reading for two years. The index value was above both its earlier flash estimate of 52.0 and the final reading of 51.6 posted in December. The level of the PMI has risen in each month since hitting a record low last February and has now remained above the neutral 50.0 mark for four consecutive months.
Commenting on the PMI data, Markit Senior Economist, Rob Dobson said:
â€œThe January final PMI readings confirm that the Eurozone manufacturing sector has built on its positive end to last year, with growth of output and new orders the fastest since mid-2007 and above the earlier flash estimates. However, the recovery is becoming two-track, with Spain and Greece in particular falling further into recession when growth in most of the other nations, led by France and Germany, is accelerating. Manufacturers are also continuing to focus on reducing headcounts and lowering stocks despite gains in output. This suggests that they retain a cautious outlook, especially while sales are still being supported by price discounting.â€
But the West European picture was characterised by two extremes. On the one hand we have France and Sweden, were economic activity is rebounding strongly, and on the other there is Spain and Greece, where the contraction continues, and the outlook seems bleak.
Business conditions in the French manufacturing sector improved for a sixth consecutive month in January. The headline Purchasing Managersâ€™ Index posted 55.4, up from 54.7 in December. The rise in the PMI reflected faster expansions of both output and new orders during the latest survey period, while supplier delivery times lengthened at a sharper rate. Manufacturing production increased for the seventh month running in January. Furthermore, the rate of growth accelerated to the strongest for almost nine-and-a-half years, with over one-third of panellists reporting a rise.
Commenting on the Markit/CDAF France Manufacturing PMI final data, Jack Kennedy, economist at Markit, said:
â€œThe recovery in the French manufacturing sector remained intact at the start of 2010. Output rose at the strongest rate for almost nine-and-a-half years in January, as the rebound from the record contraction seen in early 2009 continued. While domestic demand remained the primary driver of growth, there was also evidence of strengthening export sales, indicating a broad-based expansion. However, staffing levels continued to be cut as manufacturers targeted cost savings and productivity gains at a time when input price inflation reached a sixteen-month high.â€
In Sweden, activity simpled roared ahead, and the Silf / Swedbank Sweden Manufacturing Purchasing Managers’ Index stood at a seasonally adjusted 61.7 in January, well above December’s 58.2. The production sub-index surged to 70.2 in January from 59.7 in the previous month. The new orders sub-index climbed to 66.8 from 63.7, with the new export orders sub-index gaining 4.2 points to 62.3. Despite the improvement in new orders and production, employment levels were slashed again. The employment sub-index stood at 49.6, up slightly from 49.5.
In Spain January data pointed to a further deterioration of operating conditions at Spanish manufacturing firms. Both output and new orders fell at faster rates than in the previous month, while employment continued to decrease sharply. Companies offered discounts to clients in an attempt to boost sales, despite input costs rising again during the month.
The seasonally adjusted Markit Purchasing Managersâ€™ Index remained well below the 50.0 no change mark, edging up slightly to 45.3 in January, from 45.2 in December, indicating that business conditions deteriorated for the twenty-sixth successive month. Production contracted for the sixth month running in January, and at a steeper rate than was registered in the previous month. The latest decline reflected a further reduction in new business.
Commenting on the Spanish Manufacturing PMI survey data, Andrew Harker, economist at Markit, said:
â€œThe Spanish manufacturing sector began the new year with output, new orders and employment all continuing to fall. The steepest decline in input buying for seven months highlights the lack of confidence in the sector, with firms reluctant to invest in new stock until sales have been secured. Manufacturers were again forced to cut prices in January as weak demand made it difficult to pass on higher raw material costs to clients.â€
Central and Eastern Europe
Turkish manufacturing sector started 2010 on positive footing as output and new orders rose at robust rates. Increased new orders from overseas continued to provide support to expansion of sector, and the growth in employment was sustained. Higher input cost inflation however droves a further rise in output prices. The headline index posted 53.0 in January, indicating a solid improvement of business conditions in the Turkish manufacturing sector. The rate of expansion accelerated since December, and was the strongest in four months.
Commenting on the Turkey Manufacturing PMI survey, Dr. Murat Ulgen, Chief Economist for Turkey at HSBC said:
â€œThe Turkish manufacturing sector has started 2010 with a solid expansion rate, thanks to robust increases in new orders and output. Overall manufacturing activity has also gained traction, breaking the five-month streak of deceleration in the pace of growth since July. Export order growth was also strong, reflective of an improvement in Turkeyâ€™s export markets. Manufacturers continued to slash their finished goods inventories in order to partially fulfil rising orders, while backlogs of work were also reduced for the third month. Employment conditions maintained their favourable trend, improving for the eighth consecutive month. On the other hand, the ominous outlook on cost pressures remained intact in January, as input prices continued to rise much faster than output prices, possibly because of soaring raw material prices. This tells us that inflationary pressures are in the pipeline and businesses may pass on rising costs to their end prices when they feel more comfortable about aggregate demand conditions.â€
Business conditions in Russiaâ€™s manufacturing sector showed tentative signs of recovery at the start of 2010, according to January survey findings from VTB Capital. Output rose for the sixth straight month, and at a faster rate as new orders increased for the first time since last October. Employment continued to fall, but at a much slower rate than the trend pace recorded over late-2008 and 2009. Inflationary pressures strengthened, but remained relatively weak. The headline seasonally adjusted Russian Manufacturing PMI posted above the no-change mark of 50.0 for only the second time in the past eighteen months in January, indicating an overall improvement in operating conditions in the sector. The latest PMI reading reflected stronger positive contributions from the output, new orders and suppliersâ€™ delivery times indices, and less negative effects from the employment and stocks of purchases components. That said, the latest reading of 50.8 signalled only a marginal overall improvement in conditions, and was below the long-run trend of 52.1.
Commenting on the survey, Dmitri Fedotkin, economist at VTB Capital, reported:
â€œJanuaryâ€™s Manufacturing PMI rose to 50.8, the second reading pointing to an expansion across the sector over the past 18 months. The headline number was supported by new orders crossing the no-change 50 level to reach 53.0, while new export orders also rose (50.8). The output index rose to 52.3, pointing to production rising for six straight months and supporting the recent upturn in official statistics. In addition, at 48.2 the employment index improved for the fourth month running with further stabilization expected on the job market. The input price index rose to 61.4 amid higher commodity prices and freight charges while the output price index rose to 54.0 as companies tried to pass rising costs on to customers.â€
Hungary’s manufacturing purchasing manager index (PMI) jumped 4.4 percentage points to 53.5 points in January 2010, the Hungarian Association of Logistics, Purchasing and Inventory Management (HALPIM) reported on Monday. This marks a halt in the contraction of the manufacturing industry that had started in September 2008. Hungary’s manufacturing PMI stood at 53.5 in Jan 10, up by 4.4 ppts from Dec 09. This is the first time since August 2008 when the index is above 50. (The Dec reading was revised upward to 49.1 from 48.5 originally).
HSBC survey data for the Polish manufacturing sector signalled an overall improvement in business conditions in January, in stark contrast to the marked contraction posted one year earlier. The headline HSBC Poland Manufacturing PMI posted 51.0 in January, having been unchanged at a near two-year high of 52.4 in the previous month. Any figure greater than 50.0 represents an overall improvement in business conditions. The PMI remained above its long-run trend of 49.5 in the latest period.
Commenting on the Poland Manufacturing PMI survey, Kubilay Ozturk, economist at HSBC, said:
â€œThe headline PMI remained above break-even in January, but the momentum that prevailed in the last two months of 2009 appears to have lost some steam, with slower expansions in output and new orders. Domestic and external demand continued to improve over the month, albeit at a slower pace, particularly for the former. A decline in the employment index after a long-awaited rise in December confirms the labour market is not out of the woods yet, while the noticeable drop in output prices indicates a benign inflation environment ahead. Overall, the reading is a reminder that a straight-line recovery may not be that likely, although the Polish economy will continue to outperform its regional peers in 2010.â€
Czech manufacturing output grew at fastest rate since March 2008 and the latest PMI data compiled by Markit for HSBC showed an overall improvement in business conditions for the third month running in January. Moreover, the rates of growth for both output and new orders accelerated, and were sharper than the averages over eight-and-a-half years of data collection for the survey. Meanwhile, manufacturers shed jobs at a slower pace and continued to cut charges to support sales drives. Supply delays were again registered as firms raised purchasing volumes. The headline HSBC Czech Republic Manufacturing PMI rose to 53.1, signalling a robust overall improvement in business conditions.
Commenting on the Czech Republic Manufacturing PMI survey, Kubilay Ozturk, economist at HSBC said:
â€œThe headline index improved noticeably in the first month of 2010 on the back of a remarkable increase in output and a solid rise in new orders, underlining the uninterrupted improvement in demand. Both external and domestic markets appear to have been on the mend in January, suggesting a wider economic recovery is under way. The latter was also confirmed by a leap in firmsâ€™ purchasing volumes over the month. However, subdued increase in EMU manufacturing PMI in January and the downside surprise in a flash estimate for German 2009 growth suggest the impact of fiscal stimuli and car-scrappage schemes in Western Europe may fade earlier than expected, implying recovery may be gradual and bumpy.â€