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Global manufacturing has stalled

Sam Ro
·Managing Editor
The world's economic engine has stalled. (Image: Wikimedia Commons)
The world's economic engine has stalled. (Image: Wikimedia Commons)

New survey data signals a "broad stagnation" in global manufacturing.

The JPMorgan global manufacturing purchasing managers index (PMI), slipped to 50.0 in May from 50.1 in April. Any reading above 50 signals expansion, and any reading below signals contraction. This reading of 50.0 signals stagnation.

"Rates of expansion in production and new orders also eased to a near-stagnation, while the pace of contraction in new export business was one of the steepest during the past three years," Markit said in its report. "The muted performance of manufacturing was also reflected in the labour market, as staffing levels fell for the fourth straight month."

Global manufacturing is in stagnation. (Image: JPMorgan, Markit)
Global manufacturing is in stagnation. (Image: JPMorgan, Markit)

The largest component of the global index is the US (25% weight), where manufacturing activity continues to expand, albeit at a decelerating pace. The US manufacturing PMI fell to 50.7 in May from 50.8 in April. Unfortunately, the underlying details of the report were even less encouraging.

"The survey data indicate that factory output fell in May at its fastest rate since 2009, suggesting that manufacturing is acting as a severe drag on the economy in the second quarter," Markit's Chris Williamson said of the US report. "For those looking for a rebound in the economy after the lackluster start to the year, the deteriorating trend in manufacturing is not going to provide any comfort."

China, the world's second largest economy, also didn't have much good news to offer. The Caixin China manufacturing PMI fell to 49.2 in May from 49.4 in April. This signals contraction. The Chinese's government's official manufacturing PMI, which skews toward larger companies and state-owned enterprises, was unchanged at 50.1.

“We think the details in the survey are worse than what the headline numbers suggest, especially in new orders, export new orders, and inventories,” Credit Suisse’s Dong Tao said of the Chinese reports. “Looking forward, we expect the economy to hold up in the coming months with the lending in 1Q creating some investment activities, but without much further upward momentum. We think the economy will likely muddle through over the next 18 months.”

And then there's Europe.

"The euro area PMI slid to a three-month low in May, but nonetheless remained above the global average for the fifteenth month running," Markit said in its report. "Almost all of the eurozone nations for which data are collected registered expansions, the exceptions being France and Greece. Elsewhere in Europe, UK manufacturing stagnated, whereas growth remained solid in Poland and the Czech Republic."

"The whole world is effectively stalled because global demand growth is weak," IHS US economist Michael Montgomery said. At the center is the world's largest economy: the US.

"The US suffers at a short-term disadvantage because of the legacy of a strong dollar up until just a few months ago, and will continue to face dollar-drag for the rest of 2016," Montgomery continued. "With no engine of growth in world demand, losing exports to foreign competitors, and losing domestic market share to overseas suppliers, the moderate goods demand growth in the US is eaten away by drag. The manufacturing malaise continues with nothing but periodic spikes in one reading or another to disturb its torpor."

Sam Ro is managing editor at Yahoo Finance.

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