Global manufacturing PMI in contraction mode for first time in two years

Global manufacturing PMI falls to below 50

In the past week, September manufacturing PMIs for a wide range of developed markets (DMs) and emerging markets (EMs) were published. The aggregated global manufacturing PMI pointed to a further slowdown in global industry, with this indicator dropping by 0.5 points to 49.8 (August: 50.3). This was the first time since the (rebound from the) initial pandemic shock in the spring of 2020 that the global manufacturing PMI fell below the neutral 50 mark separating expansion from contraction. The weakness was broad-based, but in September mainly driven by emerging markets. The aggregate index for EMs dropped to 49.4 (August: 50.2), while the overall index for DMs fell to 50.1 (August: 50.3). Within the EM space, Caixin’s manufacturing PMI for China (used in the global PMI aggregate) – which has a stronger focus on private and export-oriented firms – dropped to 48.1 (August: 49.5). It is noteworthy, though, that China’s official PMI (with a stronger focus on large state-owned firms bounced back to above the neutral mark (50.1, versus 49.4 in August). Amongst DMs, the readings for the eurozone (48.4 versus 49.6 in August) and the UK (48.4, although up from 47.3 in August) were the weakest, reflecting amongst other things the significant impact of the energy crisis and the tightening of financial conditions on activity and expectations (also see our September Global Monthly here).

Weakness broad-based

Looking at the various components of the global manufacturing PMI, the further slowdown is quite broad-based. On the supply side, the output component (48.8, versus 49.4 in August) remains well below the neutral 50 mark, with the DM aggregate at 47.9 and the EM aggregate at 49.2 in September. On the demand side, the picture is even bleaker. The global new orders component dropped by 0.5 points to 47.7 (August: 48.2), an indication of the hit from elevated inflation to global demand. The global export orders component fell to 45.9 (August: 47.0), which suggests a clear correction in global trade is on the cards. Meanwhile, the components for input and output prices – indicators of global cost push pressures – stabilised at still relatively high levels, after having fallen significantly over the past few months. With demand being hit stronger than supply at the moment, the global component for delivery times showed a further improvement, rising by almost a full point to 45.7 (August: 44.8) – the highest level since September 2020.

Our global supply bottlenecks index stable in September

Our global supply bottlenecks index, which measures global supply bottlenecks and global imbalances in the demand for and supply of goods, has eased significantly over the past few months and was more or less stable in September. The easing of the index has to a large extent been driven by the demand side. More broadly, we see an easing of the majority of supply bottlenecks indicators captured in our index. The benchmark for global container tariffs has fallen around 60% compared to its peak reached a year ago, although these tariffs are still around 2.5 times higher than pre-pandemic levels. The lead times for semiconductors has fallen for a few months in a row now, albeit marginally. The delivery times’ components in our index also continued to normalise. All in all, although all kinds of supply issues (e.g. in energy or labour markets) continue to dominate the headlines, our global macro index shows that pandemic-related imbalances in the supply of and demand for goods have eased to a large extent, thereby offsetting to some extent the rise in other global cost push price factors.