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World - Manufacturing sector cools further in May

02 June 2011

The Global Manufacturing Purchasing Managers Index (PMI), published by research firm Markit on behalf of JPMorgan, fell for the third month running to reach its lowest level since September 2010. At 52.9 in May 2011 the headline index remained above the neutral 50.0 mark for the twenty-third successive month but the rate of growth was below the average for this period.

Rates of expansion eased for manufacturing output, new orders, new export orders and employment.

A marked slowdown in the US was the main factor weighing on global manufacturing growth, with the US PMI dropping by almost seven points to a 20-month low of 53.5. Among the other major industrial regions covered by the survey, rates of improvement eased in the Eurozone (seven-month low), China (weakest since July 2010), the UK (20-month low) and India (4-month low).

The Japan PMI rose sharply in May, to signal a slight overall improvement in manufacturing conditions following the earthquake-affected readings in March and April.

Production rose at the slowest pace in almost two years in May, as growth of new orders eased to its weakest during the current 23-month sequence of increase. By far the steepest easing in output and new order growth was seen in the US.

Rates of expansion in these variables also slowed in the Eurozone, China and India. The UK saw slight declines in both output and new orders. Japan reported increased production for the first time in three months, despite a negligible reduction in new work received.

Growth of international trade volumes eased to an eight-month low in May. Rates of increase eased in the US, the Eurozone and the UK, while declines in new export business were seen in both China and Japan.

Employment rose again in May, continuing a trend of rising staffing levels seen throughout the past one-and-a-half years. Although the pace of jobs growth slipped to its weakest since last November, it remained comfortably above the survey average.

Job creation was marked in the US, the Eurozone and the UK, albeit slower than in the previous month in the US and Eurozone.

Average input costs rose at the slowest pace since last October, in part reflecting lower oil and other commodity prices. However, the extent of the increase was still much stronger than the long run series average. Cost inflation eased in almost all of the nations covered by the survey, the exception being South Korea (where no change was reported). The extent of the easing was sharpest in Taiwan, the Netherlands, Italy and Poland.

David Hensley, Director of Global Economics Coordination at JPMorgan, commented "the global manufacturing sector continued to cool in May. Rates of expansion in output and new orders were either at, or close to, the weakest since the recovery began in mid-2009, and growth of international trade flows slowed. The trend in employment held up comparatively well, with solid job creation recorded, but further firming of the labour market will be restricted if the trends in output and new orders fail to regain momentum."

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