The global manufacturing sector made a robust start to the second quarter of 2010. At 57.8 in April, the JPMorgan Global Manufacturing Purchasing Managers’ Index rose to its joint second-highest level in the series history – bettered only by that registered in May 2004. The PMI has signaled expansion in each of the past 10 months.
April saw manufacturing production rise at the fastest pace since January 2004 and at the third-sharpest pace in the survey history. Among the major nations covered by the survey, growth of output hit a 75-month high in the United States, was the fastest in almost 10 years in the Eurozone (led by a survey record rate of increase in Germany) and the sharpest since February in Japan. The rate of expansion in China also remained elevated.
Supporting the latest expansion in world manufacturing output was the steepest increase in new orders for six years.
Companies reported that global market conditions were generally improving. Further evidence of this was provided by a marked increase in international trade volumes, as new export orders rose for the 10th month running and at the fastest pace in the survey history.
The outlook for the global manufacturing sector also remained positive. First, the orders-to-inventory ratio rose sharply and was well above its long-run average, suggesting that manufacturers would need to boost output further in the coming months to meet demand requirements. Second, backlogs of work rose to the greatest extent in over four years. This suggested that growth in new orders was constraining capacity, although part of the gain also reflected ongoing supply chain disruption. Higher levels of output, new orders and backlogs of work led to a further increase in staffing levels in April. Employment rose for the fourth month in a row, with the rate of job creation accelerating to its sharpest in almost six years. With the exception of the Eurozone, jobs were added in all of the nations covered by the survey. The Eurozone manufacturing labor market moved to the cusp of stabilization, however, led by higher employment in Germany and Austria.
April saw suppliers' delivery times lengthen for the 10th month running. Moreover, the average increase in vendor lead times in March and April this year has been exceeded in only one period in the survey history (between March and June 2004). Meanwhile, purchase price inflation hit a 20-month peak. Companies reported increases in the cost of chemicals, energy, food products, metals and wood products, many of which were influenced by supply chain factors. Input price inflation was especially marked in the U.S., Taiwan and Turkey.
Commenting on the survey, David Hensley, director of global economics coordination at JPMorgan, said: "The global manufacturing sector got off to a robust start to Q2, with rates of growth in production and new orders among the highest in the survey history. New export orders rose at a record pace, a real turnaround considering the severe impact the recession had on international trade. Although the current pace of expansion is likely to cool somewhat, output growth should remain strong as firms strive to keep pace with rising sales and lift the rate of inventory accumulation."
