Manufacturing Weakness Hits Global Economic Growth
The Global All-Industry Output Index – produced by JPMorgan and Markit in association with ISM and IFPSM –
posted 51.1 in August, down from 51.7 in July. The headline index has signalled expansion in each of the past 37 months, but the rate of increase is still below the average for that period.
Growth was sustained in the US during August, albeit at a slower pace, while the UK, India, Russia and Ireland also reported expansions. The Eurozone remained a fulcrum of weakness, with output falling across its four largest economies.
David Hensley, Director of Global Economics Coordination at JPMorgan, said: “The global economy remained in a low growth gear in August, with the weak performing manufacturing sector and stagnating world market demand providing the main drags on output growth. Modest job creation is a positive, but with demand weak and inflationary pressures beginning to rise, the performance of the global economy is likely to remain subdued
in the coming months.”
Japan and Brazil also saw output declines, while conditions remained relatively lacklustre in China. The output growth signalled at the headline level also masked a marked differential between the performances of the global manufacturing and service sectors.
Manufacturing production declined for the third straight month and at the fastest pace for over three years. This was largely on the back of weaker inflows of new orders and a scaling back of international trade volumes. In contrast, service sector business activity continued to rise. The rate of growth was only modest, however, and below the average for the current 37-month period of expansion.
The level of incoming new business stagnated for the second successive month in August, as market conditions remained tough and highly competitive. This was most evident in the manufacturing sector, which was hit by a drop in new orders for the third straight month. Meanwhile, service providers saw levels of new business rise at the slowest pace for three years.
Following job losses in the prior month, August saw a modest increase in global employment. This mainly reflected a recovery in staffing levels in the service sector. In contrast, weak demand and cost caution led to a second successive (slight) reduction in manufacturing payroll numbers.
August PMI data signalled a marked upswing in the rate of input price inflation, taking it to a five-month peak. Costs rose sharpest at service providers, mainly due to increased oil and transportation prices.
Manufacturing input costs continued to fall, but the rate of deflation was substantially slower than in the prior month. However, all-industry cost inflation was nonetheless slower than at the beginning of the
year and below the long-run survey average.