US, Europe manufacturing deteriorate to post-recession levels

Manufacturing growth across Europe and the US slowed during July, the latter reporting the second-weakest month of activity since the recession, according to statistics.

Growth of output and new orders dropped during the month, revealing the weakest improvement in the region’s manufacturing activity since post-recession reports during 2008-2009, the July Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) showed.

The figures reflect the latest Australian Industry Group – PwC Australian Performance of Manufacturing Index (Australian PMI), which showed local industry reporting the lowest manufacturing activity in 9 months. The Australian PMI for July will be released at the end of this month.

Australian manufacturers cited the carbon tax, lowering imports and the constant pressure from the high Australian dollar as contributors to market contraction during June.

Similarly, US manufacturers reported deteriorating export demand and lowering material costs for the drop in activity.

US manufacturing dropped 0.7 PMI points to 51.8 during July which, though still above the 50-point level separating expansion from contraction, is still cause for concern for US industry, according to Markit chief economist, Chris Williamson.

Commenting on the US July PMI report, Williamson said: “The U.S. manufacturing sector is clearly struggling under the pressure from falling exports, which showed the first back-to-back monthly decline for almost three years in July.

“Growth of production is slowing closer to stagnation as a result, and rising levels of unsold stock may mean companies seek to scale back production in coming months unless demand picks up again.”

According to Williamson, the third quarter is so far shaping up to be worse than the second quarter in terms of growth, “which is a growing concern for policymakers”, he said.

The July Markit Flash U.S. Manufacturing PMI is a ‘flash’ reading which is based on around 85% of usual monthly replies. The final July data will be published on 1 August 2012.

Elsewhere, manufacturing is also feeling the strain of decreasing market activity, with the Markit Flash Eurozone PMI reporting the ongoing downturn is driving the rate of job losses to the highest level for two-and-a-half years.

The Flash Eurozone PMI remained unchanged in July at 46.4 in June PMI points, which documents the sixth successive contraction for the region.

Output reportedly fell in response to an accelerated rate of loss of new business, which suffered the joint-second fastest rate of decline in over three years.

China, on the other hand, bucked the downward trend in terms of activity growth, with the HSBC Flash China Manufacturing PMI reporting manufacturing output grew at its fastest rate in nine months at the start of the third quarter, rising from 48.2 PMI points in June to 49.5 in July – a five-month high for the region.

Though this figure is below the 50-point level, indicating merely that the rate of decline in activity slowed during July, HSBC chief economist, China & cohead of Asian economic research, Hongbin Qu, claimed the change in direction of output was a promising sign for the region’s manufacturers.

“July's headline PMI picked up modestly to a five-month high of 49.5, suggesting  that the earlier easing measures are starting to work,” said Qu.

“That said, the below-50 July reading implied demand still remaining weak and employment under increasing pressure. This calls for more easing efforts to support growth and jobs. We believe the fast falling inflation allows Beijing to do so and a more meaningful improvement of growth is expected in the coming months when these measures fully filter through.”

[Image: telegraph.co.uk]