Global Manufacturing Sectors Disappoint

Latest Purchasing Managers Index (PMI) results show that the manufacturing industries of countries in Europe and Asia performed below expectations during the past month to dampen growth outlook in the region. The PMI is an economic indicator that is usually done through a survey that assesses and monitors the activity level of factories in areas such as new orders and output. Scores above 50 indicate that the industry is expanding while those that fall under 50 indicate a contraction.

In the UK, the Markit/Cips PMI fell to its lowest level in 14 months of 52.5 to indicate a slowdown in the sector’s expansion in August. It was previously at 54.8 in July after the figure was revised down from the original report. The decline’s largest contributor was in the amount of new orders which dropped by the largest amount since April 2013 to 52.9 from the 56.8 in the previous month. Factories’ rate of hiring decreased as well to the slowest pace in over a year.

Markit’s senior economist Rob Dobson says that the results suggest that the UK is not immune from the various turmoil and uncertainties being faced by its neighbors such as the eurozone, its primary trading partner, which has been struggling for the past year.

PMI in the eurozone also suffered from a decrease in new orders partly due to the ongoing unrest between Russia and Ukraine. Markit’s August PMI for the monetary region was the lowest in a year at 50.7 to fall from July’s 51.8. Two of the eurozone’s largest economies both recorded a decline with German factory activity at the lowest in 11 months at 51.4 while a deeper contraction was present in France where the measure was at 46.9.

According to Dobson, the poor results could add pressure to the European Central Bank to introduce additional monetary stimulus such as quantitative easing to revive the stagnating economy.

Meanwhile, the final reading of HSBC’s August PMI for China ended up below its initial flash estimate at 50.2. Factory activity levels previously reached the highest in 18 months in July when it climbed up to 51.7. While it reveals that the Chinese economy is under downward pressure, the effects may be more muted due to expectations that the Beijing government will enact additional policy easing in the coming months.