Global Business Optimism Wobbles, Says JPM PMI

Global business optimism dipped in May to its weakest level in five months as export orders fell for the fifteenth consecutive month, a sign that demand for goods around the world remains “lackluster,” according to the JPMorgan Global Manufacturing PMI.

The composite index produced by J.P.Morgan and S&P Global was unchanged at 49.6 in May from the two previous months. The headline PMI has remained below the “neutral” 50.0 mark in each of the past nine months, according to a news release published on the website of S&P Global.

The output category of the composite index increased to 51.5 in May from 50.8 in April, but new export orders declined to 47.3 from 48.4, according to the data in the release. Although global factories raised production for the fourth successive month in May, as improving supply chains boosted output, there were more “worrying signs” on the demand front as total new orders and international trade flows deteriorated further, the statement said.

International trade volumes have continued to weigh on demand, with new export orders dropping for the fifteenth consecutive month and at the fastest pace in 2023 so far. The US, the euro area, Japan, the UK and Brazil were among the nations to see contractions, whereas China and India were among those reporting growth

“Confidence dipped to its weakest since December” even though global manufacturers expect production to increase (on average) over the next 12 months, the press release said. “This filtered through to the trends in employment, purchasing and stock holdings, with staffing levels unchanged since April and decreases signalled for input buying volumes and stocks of both raw materials and finished products.”

Global Economy

The global economic situation remains uncertain.

Many economists expect a US economic downturn if the Federal Reserve continues its campaign to beat back inflation despite the world’s largest economy showing surprising resilience. Fed officials agreed to hold interest rates steady on June 14 after 10 consecutive increases but signaled they were prepared to raise rates next month if the economy and inflation don’t cool further.

In the US, new orders for manufactured goods in April increased 0.4% month on month to $577.5 billion, but were well below the 1.1% consensus, the US Census Bureau said on June 5. In March, factory orders increased 0.6%. Shipments, down five of the last six months, decreased $2.5 billion or 0.4 percent to $572.3 billion, according to the US Census Bureau.

China’s economic outlook is also uncertain.

The China Caixin manufacturing purchasing managers index rose to 50.9 in May from 49.5 in April, according to data released by Caixin Media and S&P Global. The 50 mark separates expansion from contraction. Exports fell in May for the first time since February and were much lower than forecast. Exports dropped 7.5% year-on-year to $283.5 billion, customs data showed on June 6, far worse than the 0.4% decline predicted by a Reuters poll.

Costs, Supply Chain

There was positive news on the costs and supply chain fronts in May, according to data from the JPMorgan Global Manufacturing PMI.

Average purchase prices fell, albeit slightly, for the first time in three years. Average vendor lead times meanwhile shortened to the greatest extent since April 2009, amid reports of improved material availability and lesser supply chain pressure. Average selling prices also fell marginally for the first time since mid-2020.

“The May PMI surveys suggest continued positive momentum in the global manufacturing sector,”

Bennett Parrish, Global Economist at J.P.Morgan, said: The global output index—boosted by a sizable gain in China—strengthened 0.7-points and is consistent with 1.6%ar gain in global factory output. However, the internals of the May PMIs temper the positive signal from the output index and suggest lackluster growth in goods demand.”