The J.P. Morgan Global Manufacturing PMI fell to its lowest level since May 2009 on worries about the COVID-19 outbreak and disruptions in “supply chains and demand.” The headline index decreased from 50.4 in January to 47.2 in February, with new orders, output, exports and employment sharply lower. Activity decreased for both developed (down from 49.8 to 49.5) and emerging (down from 51.0 to 44.6) economies. However, it was the latter that dropped to its lowest reading since March 2009, led by sharply lower demand and output in China and elsewhere in Asia.
With that said, it is safe to note that the March data will likely be weaker considering continued deterioration in global markets since this survey was conducted. Along those lines, many of the economic data points seem to reflect the stabilization seen in the manufacturing sector before the worsening of the COVID-19 outbreak and the current oil shocks.
Half of the top 10 markets for U.S.-manufactured goods experienced contracting levels of activity in February. To put a positive spin on those data, however, eight of the PMI readings for those 10 economies had better data in February than in January.
The Caixin China General Manufacturing PMI had shown signs of stabilization before the COVID-19 outbreak, but that progress has been halted, at least for now. The headline index plummeted from 51.1 in January to 40.3 in February, its lowest point since the survey began in April 2004. New orders, output and employment were all sharply lower, with those indices falling to record lows. Exports decreased at the fastest pace since January 2009.
While Chinese real GDP grew 6.0% year-over-year in the fourth quarter, the slowest pace since the first quarter of 1992, it is expected to be significantly reduced in the first quarter and in 2020. We would expect the Chinese economy to slow to at least 5.4% growth in 2020. Supply chain and demand disruptions due to the COVID-19 outbreak also weighed down activity in other emerging markets in Asia.
The IHS Markit Eurozone Manufacturing PMI rose from 47.9 in January to 49.2 in February, reflecting further stabilization on the continent, even as activity in the sector contracted for the 12th straight month. Nonetheless, IHS Markit observes, “Supply-side constraints were in notable evidence during February as average lead times for the delivery of inputs lengthened appreciably and for the first time in a year.”
Eurozone real GDP edged up just 0.1% in the fourth quarter, with 1.0% growth year-over-year. It was the slowest pace of year-over-year growth since the fourth quarter of 2013.
In non-seasonally adjusted data, U.S.-manufactured goods exports totaled $86.25 billion in January, down 2.26% from $88.24 billion in January 2019. This suggests that international demand for U.S.-manufactured goods continued to weaken moving into the new year. For its part, the U.S. trade deficit decreased from $48.61 billion in December to $45.34 billion in January.
Manufacturers continue to advance efforts with the administration and Congress to ensure trade certainty and address challenges overseas:
Moving forward a positive agenda at the World Trade Organization, following the release of an Office of the United States Trade Representative report
Urging a quick return to the negotiating table to begin negotiating on a U.S.–China “phase two” trade deal
Monitoring ongoing U.S.–India and potential U.S.–U.K. trade negotiations to ensure positive outcomes for manufacturers
Working to ensure that the seven-year reauthorization of the U.S. Export-Import Bank is fully utilized by manufacturers across the country
Securing a strong Miscellaneous Tariff Bill in 2020 to eliminate tariffs on products not produced or available in the United States
Recommending that the U.S. Department of Commerce refine the scope of a key export control rule
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