Global Manufacturing: Tide Going Out?

Mid Week Bond Update

Global Manufacturing: Tide Going Out?

The latest round of manufacturing data suggest activity in this key area is contracting worldwide.

Fixed income investors hoping for a mild boost in global growth are finding little to cheer in the latest worldwide manufacturing data. The August 2019 ISM U.S. Manufacturing Purchasing Managers Index (PMI) came in at 49.1, the first sign of contraction in the manufacturing sector since August 2016.

Sadly, that brought the U.S. more into line with conditions in the rest of the developed world. Japan (49.3), the Eurozone (47.0) and its manufacturing powerhouse Germany (43.5) are all in contraction territory. China’s manufacturing PMI hovered just below the breakeven 50 level since May 2019.

Major Manufacturing Center PMIs All Contracting

Source: Bloomberg, as of 8/31/2019. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.


Current tensions in global trade may mean any resolution of U.S. – China trade issues may come down to currency. According to Brandywine Global’s Francis Scotland, a devaluation of the dollar is one of the few policy options left to a White House which appears to prefer disruptive moves to longer-term policy shifts. But that begs the question of unintended consequences, both economic and political, which could be difficult to foresee – and to control.

On the rise: U.S. consumer debt

July 2019 saw total borrowing by U.S. consumers rise by $23.3 billion versus June, 2019, the biggest jump since November 2017, and well ahead of even the most aggressive forecasts tracked by Bloomberg. Of that amount, revolving debt outstanding (i.e., credit card debt) rose by $10 billion, also the most since November 2017.Other credit, including student loans and car loans (but not mortgages) was little changed. Overall, total credit expanded at an annual rate of 6.8% in July 2019, well ahead of overall economic growth {2.0%), and growth in personal consumption (4.7%) in the second quarter of 2019.

Rising credit card debt is a double-edged indicator, reflecting growing confidence in wage growth already in progress, and in the prospects for timely repayment. Given that some 70% of the U.S. economy is dependent upon consumer spending, credit growth could represent a formidable offset to short-term weakness in manufacturing, housing and capital expenditure. But the downsides, too, have been seen in previous recessions, including the dead weight of greater indebtedness on an eventual recovery if the economy fades.

On the slide: China producer prices

China’s National Bureau of Statistics reported that producer prices for August 2019 fell at an annual rate of -0.8%, the first negative rate since August 2016. The figure was roughly in line with expectations. At the same time, consumer prices rose at an annual rate of 2.8% in August 2019, about the same rate as in July.

One factor affecting consumers is the price of food, reported as having grown at a 10.0% annual rate in August 2019, while non-food prices rose 1.1% for the same period. The key factor in the food subcomponent was the price of pork, which grew at a 46.7% annual rate in August 2019, some 20 percentage points higher than in July, 2019. The huge price rise reflects the ravages of the swine fever epidemic over the past few months, described by Vice Premier Hu Chunhui as “very grave”.




The Institute for Supply Management (ISM) is an association of purchasing and supply management professionals, which conducts regular surveys of its membership to determine industry trends.

The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI) for the US manufacturing sector measures sentiment based on survey data collected from a representative panel of manufacturing and services firms. PMI levels greater than 50 indicate expansion; below 50, contraction.



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