MANUFACTURING OUTLOOK

THE GLOBAL MANUFACTURING DOWNTURN CONTINUES BUT AT A SLOWER PACE. ENCOURAGING NEWS FROM EUROPE.

SERVICES OUTPERFORMING MANUFACTURING IN THE U.S.

By: Royce Lowe

Figures recently published by the Bureau of Economic Analysis, as its second estimate, show that the U.S. GDP for the last quarter of 2022 was at 2.7%. Recent International Monetary Fund (IMF) figures forecast growth in the U.S. for 2023 at 1.4%, and the Euro area at 0.7%. Emerging nations will grow by 4% in 2023, and 4.2% in 2024, (China at 5.2% in 2023). India, together with China, is forecast to account for half of global growth in 2023, versus a tenth for the U.S. and Euro area combined.

China and the U.S. are at or nearing zero population growth which often reveals a country in decline because it cannot grow its employment base for the foreseeable future. India’s population is expanding. There is some growing concern in nations with high COVID vaccination rates that the vaccine has interfered with male and female fertility, which may slow population growth globally and inhibit economic expansion in developed and developing nations.

The U.S. inflation rate is 6.4% for the 12 months ended January 2023 after rising 6.5% previously, according to February U.S. Labor Department data. Things are so “near the edge” that pinpointing the inflation rate stretches the capabilities of those who try to pinpoint it.

The future for manufacturing, based on data from ASIS, the Armada Strategic Intelligence System, suggests that primary metals and fabricated metals are still looking at a slight downturn on the back of sluggish demand. This is somewhat reflected in recent drops in non-ferrous metal prices over the month of February. The following will serve to show what has been going on in the manufacturing world, hopefully, what the future might hold.

In the U.S., flash reports - representing data from 85% of respondents - composite index for February is at 50.2, versus 46.8 in January; the manufacturing PMI reading was at 47.8, versus 46.9 in January. The flash manufacturing production index for February came in at 48.4 versus 46.9 for January. The rate of decline of new orders was at its lowest since last October. The question is being asked, has inflation peaked, and have recession risks faded?

Light vehicle sales forecast for February, according to Cox Automotive, came in at 1.105 million, a 4% increase year-over-year, with a seasonally adjusted rate of 14.4 million. The J.D. Power and LMC Automotive forecast came in at 1,117,088 units or a 7.2% year-overyear increase.

The UK did a turnaround from January, with the flash composite index at 53.0, versus 48.5 in January, the manufacturing PMI for February at 49.2, versus January’s 47.0, and the manufacturing production index at 51.6, versus January’s 47.0.

Although Japan’s services PMI is on the rise, with a flash composite index of 50.7 versus January’s unchanged 50.7, its flash manufacturing output PMI for February is in decline, at 44.9 versus 47.2 for January. Its new orders and production fell to the greatest extent in just over two-and-ahalf-years.

China’s car sales for January 2023 showed registrations of 1.65 million, down 35% year-over-year, and the lowest figure for the month since 2012. There may be two major reasons for this drop. First, Chinese people celebrated a full week of the Lunar New Year holidays during January, making it a quieter month compared with the previous years. Second, the end of NEV subsidies at the end of 2022 made consumers choose to buy before the expiration date.

In December 2022, sales of NEVs surged by 90 percent. The seasonal decline in auto sales in China’s auto market should not be over-interpreted.

The seasonally adjusted Global Steel Users Purchasing Managers Index™ (PMI) – a composite indicator designed to give an accurate overview of operating conditions at manufacturers identified as heavy users of steel – rose to 49.2 in January, from 48.8 in December, signaling a fifth successive deterioration in operating conditions but at a weaker rate. In fact, the sector moved closer to stability. There were slower falls in new orders in all three regions - North America, Europe, and Asia. New orders fell at the weakest rate since August 22nd, with only a fractional decline in Asia. Production fell at a slightly faster rate. Employment in the global steel-using sector rose very slightly for the first time in seven months in January.

The PMI for manufacturers who are heavy users of copper went to a 3-month high of 49.1 in January from 48.7 in December. Production grew at European copper users in January. Production and new orders both fell at the slowest rates in three months, with production growth in Europe noted for the first time in ten months. Output and new orders both fell at the slowest rates in three months, with growth in production in Europe signaled for the first time in ten months. Demand remained weak in the U.S., where new orders fell at a rate little changed from December’s 31-month record, and also in Europe, although the rate of decline eased to an eight-month low. In Asia, outstanding business rose the most in nearly three years as demand showed signs of stabilizing. At the global level, supply chain pressures eased while input price inflation picked up since December but remained below the long-run series average. Employment fell for the 12th time in the past 15 months in January, whereas the European workforce has fallen only once in the past two years.

The PMI for heavy users of aluminum increased from 48.4 in December to 48.8 in January. The downturn slowed further in January to the weakest since October 2022. There was a slower decline in new orders, and a slight increase in employment in January; in fact, the first since last June. Jobs growth in the U.S. and Europe more than offset a very slight fall in Asia, with production down for the sixth consecutive month.

The prices of non-ferrous metals through most of February were on the decline, effectively wiping out all the gains seen in January. Aluminum went from $1.29 to $1.17 per lb; copper from $4.22 to 4.01; nickel from $13.20 to $11.40, and zinc from $1.58. to $1.37. LME stocks are trending down.

Overall, the U.S. economy is showing some resilience, and Europe may not experience as deep a recession as predicted caused by natural gas prices. China will show growth, although numbers from China are always suspect. Countries in Oceania will benefit from supply chain shifts from Chinese companies to suppliers in Vietnam, Thailand, Indonesia, India, and Malaysia. Thus, previous dire recession forecasts have moderated to more neutral conditions.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook.