August survey data point to a moderation in global manufacturing activity, rather than a sharp slowdown

Nick Verdi

The key message from the August manufacturing PMIs is one of moderation, rather than a hard landing for the sector. A recent concern of financial markets has been that a slowing in activity-based indicators implied that the global economy was headed for a sharp slowdown. However, today's releases are not consistent with that view.

Our global manufacturing confidence indicator, which rose to a 21-year high in Q2, slowed to a more sustainable pace in the latest month. On an individual economy basis, the decline was driven by Japan (50.1 from 52.8) and Germany (58.2 from 61.2). Nonetheless, the German index is well above the no-change mark of fifty and 1.1 standard deviations above the long-run average. In the US, the headline index recorded a counter-consensus increase between July and August, rising to 56.3 from 55.5. In addition, China's manufacturing PMI rose to 51.9 from 49.4.

For new orders, with the exception of China (52.7 from 47.9) and France (57.3 from 56.7), there were widespread declines. For Germany, this sub-component fell to 57.6 from 63.2, while in the US, this index fell to 53.1 from 53.5. We would characterize these outturns as consistent with fairly robust growth in manufacturers' order books. In terms of inventories, there was a decline in stocks at a global level, driven by France, Germany, Japan and China, all printing below 50. These moves, together with the decline in new orders at a global level, point to an increase in our global new orders-inventories indicator, which in turn suggests that global manufacturing output growth is set to ease at a more moderate pace than implied by the July dataset.

source: BarCap