- US manufacturing sector expansion continues
- Eurozone’s manufacturing PMI pulled down by Germany; Spain and the Netherlands sharply higher
- China’s PMIs edge lower, partly driven by temporary shutdowns; slowdown to remain gradual
US manufacturing sector expansion continues
US manufacturing surveys suggest that the economy continues to gain pace. The Institute of Supply Management (ISM) slowed to 58.7 in November from 59 the month before. One of the subcomponents, the new orders index rose to 66 from 65.8 to mark the highest level since August. Orders over the past few months have been the strongest in a decade. A stronger labour market and lower oil prices are expected to give a boost to consumer demand in the coming months. New export orders reversed their October decline and increased to 55 from 51.5. Prices paid continued to slide due to lower oil prices, to 44.5 from 53.5. Meanwhile, the Markit PMI edged up to 54.8 in November from 54.7 in the previous month, a slightly slower pace than consensus expected (55). We expect the US economy to grow above trend in the coming quarters.
Eurozone industrial weakness concentrated in Germany
Germany was the main drag on the eurozone’s industrial sector in November. The final reading of the eurozone manufacturing PMI for November showed that it declined from 50.6 in October to 50.1 in November (revised lower from the flash estimate of 50.4). Germany clearly was the main drag on the report, with its manufacturing PMI falling from 51.4 to 49.5 (revised lower from 50.0). Meanwhile, the manufacturing PMIs in all the other big eurozone countries either rose or stabilised. Spain and the Netherlands were the strongest, rising by 2.1 points to 54.7 and by 1.6 points to 54.6, respectively. We expect Germany’s PMI to pick up in the coming months. The industrial sector should be supported by strong domestic fundamentals, lower oil prices and the combination of a weaker euro and stronger global economy. This was already signalled by a rise in Ifo’s business climate in manufacturing in November.
China manufacturing PMIs edge lower …
China’s official and HSBC/Markit’s PMIs edged lower, pointing to a further loss of momentum in the manufacturing sector. Both indices improved in the first half of 2014 following policy stimulus launched in Q2, but have been trending down since July. The official PMI fell from 50.8 in October to 50.3 in November, the lowest level since 2014. Meanwhile, HSBC/Markit’s version fell to the neutral mark of 50 (in line with the flash estimate published last week), reaching a six-month low.
… partly driven by temporary shutdowns
Part of the production slowdown seems to be driven by the suspension of industrial and construction activities in Beijing and surroundings, aimed at reducing pollution during the November APEC summit. As these activities are being resumed and the government adds additional stimulus, we expect some normalisation in manufacturing going forward.
Ongoing stimulus means slowdown will remain gradual
The recent rate cuts and targeted measures to support the property sector and domestic banks, show that the government remains committed to do what it takes to keep the slowdown of the Chinese economy at a gradual pace. Note that lower oil prices will benefit China as energy importer as well. We expect further ‘measured’ easing including specific targeted measures, but aggressive easing policies as seen in Japan and other advanced economies are not on the cards.