MANUFACTURING OUTLOOK

GLOBAL PERFORMANCE MAINLY IMPROVING THROUGH SERVICES. INPUT PRICES AND SUPPLIER DELIVERIES ON ENCOURAGING TRENDS.

By: Royce Lowe

Data from ASIS, the Armada Strategic Intelligence System report, suggests that manufacturing industrial production will show a very slight overall contraction through 2023, whose second half will show a recovery after a similar contraction in the first half of the year. Primary metals are forecast to strengthen in 2023 with a stronger mid-year recovery followed by stabilization through the end of the year and into 2024. Inventories of the major non-ferrous metals are lower than for decades. If usage improves as thought, this will push prices higher than expected. A strong start to 2024 is anticipated. Fabricated metals will see a contraction in

2023’s first two quarters, followed by growth in Q3 and a final contraction to see out the year. Some weakening in early 2024 is likely.

The automotive sector is looking healthy, with good growth seen through 2023. Aerospace looks generally healthy through 2023 and 2024, with good demand and, hopefully, a good supply chain. Computer and electronic products are looking better towards year-end. Electrical and Appliances will likely show contraction throughout 2023. The machinery sector will suffer a lack of demand through mid-2024.

The Global Steel Users PMI for March showed a marginal decrease in operating conditions across all monitored regions (U.S., Asia, and Europe). There was a second improvement in delivery times, and output price inflation was at a 29-month low. New orders fell in all three regions, as did export orders. Employment levels fell in March, for the first time since November 2022.

The March Global Aluminium Users PMI™ data signaled a sharp reversal in fortunes among aluminum-using manufacturers in March, as the boost provided by the reopening of the Chinese economy receded sharply. Global output and new orders fell back into contraction territory, albeit at marginal rates, while purchasing activity stagnated. As output and new orders fell, firms took the opportunity to work through backlogs at the quickest rate for 33 months. More positively, there was a sustained shortening in suppliers’ delivery times, which contributed to a further easing in average cost burdens. As such, the rate of input price inflation eased to the lowest for seven months, which allowed firms to raise selling prices at the softest rate since October 2020.

Global copper-using firms registered a sharp slowdown in new order growth during March. Growth wholly reflected a sustained yet slower increase in Asia, while firms in both the U.S. and Europe saw incoming orders fall at a solid pace. Demand was partly offset by a renewed contraction in export orders that was the fastest for three months and driven by the first reduction in Asia since December. All three regions saw increases in employment in March, with the best performance coming from Europe.

Global demand for manufactured goods fell for the ninth month running, with the rate of contraction being the weakest during the sequence. International trade in goods fell for the 13th straight month. The service sector’s new export business rose at its quickest pace in over a year. The global composite PMI rose by 1.3 points to 53.4 in March, a nine-month high for the series. New orders and employment also strengthened. A wide disparity remains between the performance of the manufacturing and service sectors, with the latter moving ahead on its way to a sustained recovery while manufacturing remains relatively lackluster. The latest survey shows still-modest demand and rising inventories.

The Economist Intelligence Unit, in its Global Economic Outlook for 2023, forecasts a low risk of recession for 2023, with an economic rebound in the second half of 2023, continuing into 2024. There are those, too, who say a recession in the U.S. is either inevitable or is already here. If not, it will be by Q3 this year. Overall, the predictions call for no more than a mild recession.

Other predictions are saying the U.S. unemployment rate will be 6.5% to 7% by early 2024. Global growth will be 2%, with stagnating growth in Europe and the U.S. Global growth of 2.5% is expected in 2024, with a rebound in the Eurozone and the U.S. and still high growth in China. China’s estimate of its own growth in 2023 is 5%, and The Economist’s is 5.7%. Both the U.S. and Europe are forecast to grow at 0.7% this year.

The global manufacturing economy is suffering from a lack of demand due in large part to a lack of consumer confidence or a downright inability to “consume.” The U.S. inflation figure for mid-April was 5.2%, down from February’s 6.0%, and probably largely due to a drop in oil prices. Interest rates will continue to rise until inflation is licked. The performance of the service sector is what is keeping the global economy’s head above water. The latest monthly manufacturing PMI figures show declines in Japan, China, the Eurozone, the U.K., and Canada. The U.S. climbed but is still in contraction. India is the anomaly, with its March PMI increasing from 55.3 to 56.4. Employment has stayed high in just about all regions, but unfortunately, this has gone along with a lack of skills in some cases.

Overall, a recession isn’t a foregone conclusion. It is more of an ‘if’ than a ‘when’, and even then, it is difficult to predict its depth and length.

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