Manufacturing PMI

02 Jan 2019

Manufacturing PMI softens in December

The latest IHS Markit Manufacturing PMI release shows that the manufacturing sector here had a slower end to 2018.

54.5
PMI cooling to a nine month low

The latest IHS Markit Manufacturing PMI release shows that the manufacturing sector here had a slower end to 2018, with the headline PMI cooling to a nine month low of 54.5 in December (November: 55.4). The weaker headline reading was influenced by slower New Orders, with the growth rate falling to an eight month low (albeit remaining in positive territory for the 29th successive month). Softer growth in demand helped to arrest the slide in Stocks of Finished Goods, which posted their first uptick in four months. 
 

Unsurprisingly, companies reacted to the slower momentum in orders by cooling the pace at which they are adding to headcounts, but not to the extent that it derailed the 27 month sequence of above-50 readings for the Employment component. There was mixed news on the margin side, with input cost inflation slowing to a 14 month low, but output charges were flat on the month, ending a two-and-a-half year sequence of inflation.


We consider the softer PMI readings in recent times to have been influenced by concerns about the external environment, notably Brexit. However, there are signs in today’s report that companies are becoming more optimistic about the outlook, with Stocks of Purchases climbing at their fastest rate for 49 months while 55% of panellists are confident of a rise in output over the coming 12 months (this is the most positive reading for that component in the past three months). How events play out at Westminster in the coming weeks is likely to prove pivotal. On Friday we will see if the Services sector also had a relatively soft finish to last year. The headline Services PMI moderated to an eight month low of 57.1 in November.
 

Caixin manufacturing PMI falls into negative territory


The Caixin manufacturing PMI fell from 50.2 to 49.7 in December, its weakest outturn since May 2017. This morning’s release mirrors the official NBS manufacturing PMI on Monday, which declined from 50.0 to 49.4 in December in its first contraction since July 2016. Chinese equities have sold off today after a two-day market holiday; the Shanghai Composite is down 1.2% and the Hang Seng is off 3.0%. The US Manufacturing PMI will be released at 14.45 today.

 

Following the jolt provided by the FOMC rate hike in December and the slide and partial recovery in US equity markets, markets will return to assessing when the Fed is likely to raise rates next in 2019

US this week
 

Following the jolt provided by the FOMC rate hike in December and the slide and partial recovery in US equity markets, markets will return to assessing when the Fed is likely to raise rates next in 2019. To that end, this week sees manufacturing and services PMI data for December (Wednesday and Friday respectively at 14.45), ADP employment (Thursday 13.15), and most importantly Non-farm Payrolls (Friday 13.30). We also start the year with the US government in shutdown over funding for president Trumps border wall, President Trump, and Democratic leader (and now possible Dem nominee for 2020) Nancy Pelosi are due to meet today to continue talks and attempt to break the deadlock.

UK this week


With UK Parliament not expected to return until next week, Brexit related news flow has been limited, although Theresa May’s New Year’s Eve call for unity, and London’s Europhilic New Year’s fireworks display have both ensured that Brexit remained in the headlines over the holiday period, and we will probably continue to see Brexit in the headlines over the coming weeks. Elsewhere, PMI data will be a good gauge of whether Brexit uncertainty is having a greater impact on businesses. Manufacturing PMI (9.30 Wednesday) may rise if British firms have been building inventories to prepare for a disorderly Brexit; Services PMI (09.30 Friday) has already fallen from 53.9 in September to 50.4 in November, given the scale of the recent decline, we believe a further fall is less likely at this time.


EU this week


In Europe, in addition to PMI’s (Manufacturing, 9.00 Wednesday; Services, 9.00 Friday), we have EU inflation data for December (Friday, 10.00). Headline inflation has been hovering around the ECB’s 2% target, and is expected to remain within 10bps this month. Core inflation has remained stubbornly close to 1%, which is not a level which will entice the ECB to further normalise monetary policy any time soon (having announced the end to asset purchases in December).