A few months ago, we talked about how the immediate recoveries are seen across the world after the worst of the lockdown restrictions have taken their toll on the major economies.
What are the recent reports telling us about the industry’s trends?
Before we dive into the deets, lemme tell you some points you need to know:
- Purchasing managers index (PMI) reports are surveys answered by purchasing managers in the manufacturing sector. They’re asked whether prospects for employment, inventory levels, new orders, and production and supplier deliveries have risen/improved, fallen/deteriorated, or remain unchanged for the next 12 months.
- A reading of 50.0 and above hints at industry expansion, while prints of 49.9 and below point to contraction.
- PMIs only hint at the direction and NOT magnitude. That is if one manager reports a net decrease of $200,000 in new orders and two managers each reported a net increase of $1,000, the New Orders component would still “expand” for the month.
- Ross and Rachel were on a break. Just thought ya needed reminding.
With these in mind, I scanned through the latest PMI reports and found some interesting takeaways:
The PMIs *did* see V-shaped recoveries
Or at least something that resembles a deep ditch in a bumpy road.
The dips and upturns were more uniform in the European and North American while China – which implemented its strictest lockdowns in February – saw its “V” earlier than its peers.
Before you get all excited, you should remember that the degree of PMI increase or decrease does NOT reflect the degree of recovery.
So, a ten-year high for a PMI does not mean that activity has hit ten-year highs. It simply means that managers who have reported expansion (compared to the previous month) have outnumbered those who have reported contraction or stagnation by the most in ten years.
Manufacturers are passing their increased costs to their clients
Weeks of extremely limited activity have led to backlogs and supply shortages for most manufacturers.
It also doesn’t help that anticipation of new restrictions amidst a second (Maybe third?! Seventh?!) wave of COVID-19 has encouraged stockpiling for stores and other businesses.
The demand surges from the end of the first wave and the beginning of the second wave of restrictions have led to higher input costs and wages.
This is probably why manufacturers in Australia, Eurozone, China, and Canada have reported charging higher prices. In the U.S., average selling prices have even hit all-time highs!
You might want to think twice about using what’s left of your stimulus moolah to buy a PS5 until businesses have adjusted to their operational deficiencies.
Those who have contained the virus are now worrying about their trading partners
Countries like New Zealand, Australia, and China have mostly contained new COVID-19 infections and are enjoying a more open domestic economic activity.
Unfortunately, they’re also export economies. So, while it’s fun to post beach and #brunch pics, manufacturers would rather see fewer infections for their trading partners across the globe.
The second wave of lockdowns may not be as bad for the industry
The second wave of COVID-19 infections has forced countries like France, Germany, and the U.K. into reintroducing strict lockdown measures.
Manufacturers aren’t as pessimistic as earlier this year, however. For one thing, export demand remains strong from economies like China and Australia that aren’t on strict lockdowns.
Businesses have also turned lean and mean in the last few months, which means there will be less unemployment and asset liquidation than in March.
Last but not least is that, unlike earlier this year, manufacturers can see an end in sight with health companies rolling vaccine updates left and right in the last few weeks.
The latest PMI reports show that the industry isn’t bringing sexy back just yet. Firms are still cautious about capital spending and hiring, and most can’t wait for vaccines to improve global supply and demand conditions.
For now, though, it looks like manufacturers are adapting enough to remain optimistic for their short-term prospects.
