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Manufacturing Changes - April 2, 2019

“Further Deterioration” vs “Expanding Business Strength”

What a difference a week makes. Axios published an article last week, “Global manufacturing data is contracting” that warned of broad problems. German “new orders fell to the lowest level in a decade”, while both manufacturing and service sector PMIs in France “are now in the red”. Asia was not immune, with Japan’s manufacturing PMI falling “into contraction territory” following “China’s weakening readings” that had already broken into the red. The article posited that the market would be “on pins and needles” awaiting U.S. data.

This week the tune has changed. While Axios’s headline this morning read, “China’s manufacturing rises as U.S., Japan and Europe fall”, there was good news. “Global manufacturing... was flat in March – the first time it has not fallen since April 2018”. Alan Rusking of Deutsche Bank explained, “The steady result was achieved in no small part thanks to a better performance from China” where, as Reuters noted in a recent article, ”the manufacturing sector unexpectedly returned to growth”. Reuters cautioned that slow growth in domestic and export orders was “marginal, suggesting the economy will remain under pressure in coming months”, but the rosy data was a “sign that government stimulus measures may be slowly gaining traction”. While Chinese data always reminds us of George Bush’s quote about “Fool me once...”, strong numbers out of China bode well for the global economy.

Meanwhile, here in the US, IHS Markit and ISM Manufacturing PMIs are at loggerheads. IHS Markit is more pessimistic and saw “further deterioration in the manufacturing PMI” at the same time “the forward-looking indicators are a cause for concern”. ISM was more cheerful, the overall index bouncing and many of the sub-indexes improving. Timothy Fiore, Chair of the ISM Survey Committee, noted that “Comments from the panel reflect continued expanding business strength” as “[d]emand expansion continued”. In an interview with Bloomberg Radio, Fiore positively noted that “price growth is back on the scene.” Fiore also highlighted extremely strong labor data, with Employment jumping more than five percentage points, taking the lead as the “strongest contributor” to the overall index’s improvement. Employment was coincidentally one positive from the IHS Markit data. As Chris Williamson, Chief Business Economist at IHS said, “Those looking for positive signals will... note that hiring remained encouragingly solid during the month” and “at least some of the slowdown is due to capacity constraints, notably in terms of skill shortages”. While the jury appears to be out on the state of US manufacturing, strength in the labor market is “a good thing” for policymaker and everyman alike.