The global manufacturing sector grappled with persistent challenges in July, with the JPMorgan Global Manufacturing Purchasing Managers’ Index (PMI) remaining below 50 at 48.7, marking the eleventh consecutive month of decline in the health of the goods-producing sector. While this index remained stable, a deeper look reveals deteriorations in both production and new orders, driven by a sharp drop in global trade flows and a continued focus on reducing inventory.
The most significant decline occurred in the eurozone, while a decrease in output was also noted in mainland China, Taiwan, South Korea, Malaysia, the UK, Brazil, and Japan. Only the United States managed a marginal gain.
Global manufacturing output experienced a second consecutive monthly fall in July, with the output index from the Global Manufacturing PMI dropping from 49.3 in June to 49.0, the lowest level since January.
The decline in global goods exports exacerbated the decrease in new order inflows for manufacturers worldwide, which fell for the thirteenth successive month. The rate of decline accelerated to its most significant level since December 2022.
Another factor contributing to the manufacturing challenges is the trend toward inventory reduction. Input buying by manufacturers fell at the fastest rate since January, marking a 12 consecutive month of decline. Inventory holdings of raw materials, as well as stocks of finished goods, have also decreased.
July’s surveys underscore how the worldwide manufacturing economy continues to grapple with challenges arising from higher interest rates, increased living costs, inventory reduction, and changes in spending patterns post-pandemic, with a shift from goods to services.
While there may be some relief in the coming months once inventory levels have reached desired levels, concerns about persistent headwinds to growth remain. Price levels remain elevated, and interest rates are at their highest since the global financial crisis. Policymakers are cautious not to lower rates too quickly, aiming to control inflation.
In this environment, the outlook suggests ongoing decline or, at best, very modest growth. While there was a slight brightening in manufacturers’ average outlook for the next 12 months in July, business confidence remains well below the survey’s long-run average, reflecting broad-based concerns about growth headwinds in the months ahead.