The latest data released by the United States and the Eurozone show that their manufacturing industries continue to expand, indicating that the economies are still on track to recover. However, supply chain issues are becoming hidden dangers for manufacturing expansion. In general, the trend of economic recovery has not changed under the impetus of vaccination work.
Manufacturing continues to expand
On May 3, local time, data released by the Institute of Supply Management (ISM) showed that the Purchasing Managers Index (PMI) of the ISM manufacturing industry in April was 60.7, which was still above the 50 mark, indicating that the US manufacturing industry is continuing to expand.
From the perspective of sub-item data, the ISM production index is 62.5, and the new orders and employment data are 64.3 and 55.1 respectively. ISM data also showed that factories and their customers reduced their inventories to meet strong demand. The factory inventory index set the fastest rate of decline since August last year, and the customer inventory index fell to a record low. The price indicator paid by manufacturers hit a new high since July 2008.
Data released by financial data provider IHS Markit also showed that the final value of the US manufacturing PMI rose to 60.5 in April, but lower than the initial value; the final value of the output sub-index last month rose to 57.2, the same as the initial value; the final value of the input price sub-index rose to 77.2, lower than the initial value. Undelivered orders and export orders both increased in April, and companies began to use inventory to respond to demand.
Williamson, chief business economist at IHS Markit, said that in April, the US manufacturing industry experienced its biggest boom in at least 14 years. With the increase in hopes of recovery and the introduction of new stimulus measures, demand has surged at a rate that has not been seen in 11 years.
The final value of the Eurozone IHS Markit manufacturing PMI in April was 62.9, the highest level since the survey began in June 1997, higher than the previous value of 62.5, but lower than the initial value of 63.3.
In the past two months, both output and orders in the Eurozone have grown at an unprecedented rate since the survey began in 1997. The analysis believes that the bright prospects of the Eurozone economies in getting rid of the new crown pneumonia pandemic have prompted a surge in demand.
Judging from the performance of countries in the Eurozone, Germany’s final manufacturing PMI in April was 66.2, slightly lower than the expected 66.4 and initial value of 66.4. The index generally remained near the record high in March, mainly due to the continued strong growth of new orders; The final value of the French manufacturing PMI in April was 58.9, which was lower than the previous value and the expected 59.2, which was slightly slower than the previous month’s record growth. Factory output and new orders were still high; the final value of the Italian manufacturing PMI in April was 60.7, higher than the previous value of 59.8. IHS Markit economist Cooper said that the Italian manufacturing industry continued to recover strongly in April, and the manufacturing PMI rose to a historical high of 60.7. At the same time, output was close to historical levels, and the growth rate of new orders reached the fastest level in 21 years.
Supply chain hidden dangers appear
Although the manufacturing index of the United States and the Eurozone are both significantly higher than the 50 mark, and the Eurozone’s manufacturing PMI has risen to a record high, a careful analysis of the data shows that the hidden dangers of the supply chain have contributed to the expansion of the manufacturing industry. The impact is still showing in different ways.
The US data of 60.7 in April has fallen from the high of 64.7 in more than 37 years a month ago, and is lower than the 65 expected by all economists surveyed by Bloomberg. Correspondingly, due to capacity constraints, the ISM production index fell to a three-month low of 62.5, down from 68.1 in March. The ISM new orders and employment index were also lower than March’s 68.0 and 59.6 respectively.
The data reflects the problems in the supply chain. Some analysts believe that these changes show that due to continued supply chain problems and material shortages resulting in limited production and backlog of orders, the growth momentum of the US manufacturing industry has cooled in April. The decline in ISM production indicators is mainly due to capacity constraints.
Timothy Fiore, chairman of the ISM Manufacturing Committee, said that the manufacturing industry continued to recover in April. However, some interviewees said that their companies and suppliers are trying their best to meet the increasing demand, but record long-term relationships. Delivery times, widespread shortages of key basic materials, rising commodity prices and difficulties in product transportation continue to affect all parts of the manufacturing economy.
The data also reflects the inflationary pressures facing the world. Continued supply challenges have limited the manufacturing industry’s supposedly strong growth momentum, resulting in a record backlog of orders and pushing up material prices. The index of prices paid for raw materials jumped to the highest level since July 2008, highlighting the shortage of inputs.
Part of the data in the Eurozone also shows that supply chain issues restrict the manufacturing industry. The growth of manufacturing activity in France in April slowed slightly from the previous month’s record growth, as supply chain bottlenecks constrained the industry’s recovery. Companies report that as France enters the third nationwide lockdown, supply chain disruption remains worrying.
IHS Markit economist Smith commented on the final value of the German manufacturing PMI in April, said that the backlog of orders has increased for the second time in a row, highlighting the strong demand facing German manufacturers, but also highlighting that production is still lagging behind new orders. Data show that commodity producers have redoubled their efforts to expand production capacity. Job creation in April accelerated significantly, reaching the fastest level in more than two and a half years. However, supply issues are still a risk to the growth prospects of the manufacturing industry.
From a global perspective, taking the automotive industry as an example, the shortage of chips has been suppressing the production of auto factories, and global auto giants have announced factory production cuts or suspensions.
A large number of media reports show that US automakers have cut production because of the surge in orders for products such as smartphones, TVs and computers, and the chip shortage still shows no signs of alleviating. Automakers are striving to allocate some funds for automotive-grade chips, and warned that if the U.S. car and light truck industry is not given priority, the U.S. car and light truck production may be reduced by 1.3 million units this year.
German central bank chief economist Ubrich said recently that the chip shortage crisis in the German industry may worsen in the second quarter, which will affect Germany’s economic recovery this year.
The trend of economic recovery remains unchanged
Although the supply chain restricts the recovery speed of the manufacturing industry to a certain extent, the service industry will continue to benefit from the advancement of vaccination and the decline of the pandemic, so that the overall economic recovery trend remains positive.
Data show that in the first quarter, the US durable goods consumption, non-durable goods consumption and service consumption grew at 9.0%, 3.4% and 1.1% respectively. The advancement of vaccination and the decline of the US pandemic will continue to drive the rapid repair of the US service industry, of which catering and accommodation consumption will benefit most. In addition, consumption of durable goods is still the sub-item most affected by fiscal stimulus, and the new round of stimulus plan in the United States can still support U.S. consumption.
Analysts believe that vaccination promotes the relaxation of travel restrictions, and the US service industry is expected to maintain a rapid recovery. At present, the proportion of one-shot vaccination in the United States is nearly half, and the proportion of full vaccination is about one-third. Biden predicts that the United States vaccination rate will exceed 70% in early July this year. This will be significantly ahead of other advanced economies. Vaccination has promoted the rapid decline of the pandemic. According to the latest regulations of the US Centers for Disease Control and Prevention, domestic and international travel restrictions have been completely lifted for fully vaccinated people in the country, which will benefit the liberalization of the US service industry.
JPMorgan Chase expects that the US economy will grow by 0.2% in the second quarter compared to the end of 2019, after previously expecting a decline of 1.9%. The bank also expects economic growth to expand to 4.3% in the next 12 months (by the second quarter of 2022).
The recovery in the euro area is relatively limited, and the situation is different from that of the United States. According to data disclosed by Eurostat, in the first quarter of this year, the Eurozone’s gross domestic product (GDP) fell by 0.6% month-on-month after seasonal adjustments, while the EU as a whole fell by 0.4%, and the year-on-year data fell 1.8% and 1.7% respectively. Among the major economies, with the exception of France, the economic data of Germany, Italy and Spain all experienced a month-on-month decline.
However, the trend of European economic recovery has not undergone a fundamental change. Starting from the second half of the year, countries within the EU will begin to receive economic recovery support funds, and the vaccination rate in the region is also accelerating. The European Commission predicts that 70% of adults will be vaccinated by this summer, and countries that rely on tourism are expecting a higher base of “immunized population” to bring a successful summer travel season.
Source: Economic Information Daily