The “strong dollar” has been blamed for the manufacturing doldrums in the US that started over a year ago. But then manufacturing in other countries should boom, or at least not decline, but that’s not the case. Manufacturing is sick and weakening in just about every major economy!
References to 2009 and the Global Financial Crisis keep popping up in the latest spate of reports because that’s how bad it has gotten.
US manufacturing gets ugly.
On Monday, Markit reported that its US Manufacturing PMI, which tracks the overall health of the manufacturing sector via surveys sent to purchasing managers, dropped to 50.5 (below 50 = contraction) in May, the weakest reading since October 2009.
Production actually declined for the first time since September 2009, “the height of the Global Financial Crisis.” Companies blamed “reduced foreign demand” as new export orders fell for the second month in a row. And they blamed the “uncertainty around the general economic outlook” which had caused their customers “to delay spending decisions,” which then triggered production cuts.
Backlog of work fell for the fourth month in a row, at the same rate as in April, which had been a “post-recession record,” which means that companies “will be poised to cut capacity unless inflows of new work start to pick up again.”
The report summarized it this way: “The weak manufacturing PMI data cast doubt on the ability of the US economy to rebound from its disappointing start to the year in the second quarter.”
Then Japan hit the world with its collapsing trade figures.
Exports plunged 10.1% in April from a year ago, on weakness in China and other emerging markets, as Japan’s Ministry of Finance reported on Monday. Imports plummeted 23% on lower commodity prices and weak demand at home, despite (or because of) the Bank of Japan’s reckless scorched-earth monetary double whammy of QQE and negative interest rates.
So it fits in nicely that the Nikkei Japan Manufacturing PMI, also released on Monday, dropped to 47.6 (below 50 = contraction), with the output index plunging to 46.9, the sharpest decline in 25 months.
The new orders index, a harbinger for future business, dropped to 44.1, the sharpest decline in 41 months. Turns out, one of the primary reasons for the drop wasn’t the April earthquake, but “a marked contraction in foreign demand, which saw the sharpest fall in over three years.”
Overall, Japanese companies experienced the “sharpest decline in operating conditions since December 2012,” which was when Abenomics became the new economic religion of the land.
And the Eurozone chimed in.
The Markit Eurozone Manufacturing PMI for May edged down to 51.5, so still an expansion, but barely, and thus the cleanest dirty shirt. The rate of output growth was the second weakest in 15 months. Growth of new orders dropped as well.
“Domestic market conditions remained tough and softer international trade flows led to the smallest rise in new export business in 16 months,” the report said, and growth is “more likely to weaken further than accelerate.”
On top of the debacles in China, Russia, and Brazil.
In early May, the Caixin China Manufacturing PMI for April dropped to 49.4 (below 50 = contraction):
All of the index’s categories indicated conditions worsened month-on-month, with output slipping back below the 50-point neutral level. The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out.
New orders “stagnated” and export orders dropped for the fifth consecutive month. Weak demand “contributed to a further solid decline in staff numbers,” even as “inflationary pressures intensified across the sector,” with input and output prices rising, the latter at the sharpest rate since October 2011:
Latest data indicated that weaker foreign demand continued to weigh on overall new orders, with new export work falling for the fifth month running.
Some companies continued to downsize, “while others chose not to replace voluntary leavers,” and overall employment fell again, “with the rate of job shedding only fractionally slower than February’s post-Global Financial Crisis record.”
Also in early May, the Brazil Manufacturing PMI for April indicated that the country would remain stuck for a while longer in its worst recession in decades: the index plunged to 42.6 to the lowest level since the Global Financial Crisis.
The downturn in purchasing activity “was the quickest in 85 months.” Companies shed jobs at a “record pace amid worsening operating conditions.” Inflation reached a “93-month high.” Incoming new work fell for the 15th month in a row, at the “second fastest pace since March 2009.” And “there is little sign of a rebound.”
Manufacturing in Russia, which has been in a steep recession since the beginning of 2015, continues to get uglier. The latest Russia Manufacturing PMI, released on April 29, fell to 48.0 in April, an eight month low and “pointed at an intensifying downturn in the goods-producing sector of Russia.”
Production plunged at the fastest rate since May 2009, the depth of the Global Financial Crisis, with all subsectors reporting a drop. Backlog of work was being depleted. Companies shed employees for the 34th month in a row, and price pressures continued.
Incoming new orders got hit by a “broad-based” decline. The report blamed “foreign demand” in particular. And “there was evidence that falling new orders reflected a lack of liquidity among customers.” So they’re running out of money.
The fact that just about all major economies are experiencing a manufacturing slowdown, or even a prolonged recession, and in a few cases something closer to a manufacturing depression, shows that the American problem with manufacturing isn’t the “strong dollar,” but crummy global demand for manufactured goods that is now hammering all major economies.