Manufacturers Are Manufacturing. Which Is Good

Factory check! Because nothing’s more exciting on the first day of trading in a brand new year than a deluge of bland PMIs.

Although it wasn’t all good news, December manufacturing PMIs out Monday generally painted an upbeat picture, both in Asia and Europe.

“Production continued to rise, albeit at a slightly reduced rate, while goods producers reported strong optimism towards the year-ahead outlook,” the color accompanying the final read on Germany’s factories for December from IHS Markit said. “Less positively, however, factory workforce numbers remained in decline, while increased strain on manufacturing supply chains led to a sharp rise in cost pressures.”

In France, “the upturn was predominantly driven by a renewed expansion of production, which helped to offset a further decline in new orders,” IHS Markit observed, noting that “vaccine breakthroughs saw confidence levels rise to the highest since April 2019.”

Italy saw “a seventh consecutive monthly increase in output, with the rate of growth quickening on the month amid reports of improved demand in some sectors.” Spain, however, witnessed “a second successive monthly drop in employment [and] underlying conditions remained challenging.”

Common to all European manufacturing PMIs for December was heightened optimism. Expectations were generally robust, although German optimism abated a bit.

“Many firms were hopeful that the pandemic’s impact on economic activity would diminish, and that clients’ appetite for investment spending would continue to recover,” Germany’s survey read, capturing the mood.

Meanwhile, in Asia, Japan’s factories stabilized for the first time in months, while momentum in Taiwan continued.

At 59.4, Taiwan’s gauge of factory activity sat at a decade high, and South Korea’s unchanged print for December marked a third consecutive month of expansion.

“Taiwan’s manufacturing sector had a strong end to 2020, with firms registering the steepest upturns in output and new orders for nearly a decade,” IHS Markit’s Annabel Fiddes remarked, adding that “encouragingly, firms reported greater demand both at home and abroad, with growth of export sales also improving to its highest for nearly 10 years.”

Overall, manufacturing PMIs for December helped support the market mood coming off the holidays.

Although PMIs never make for the most compelling reading, they’re nevertheless worth documenting, especially at a time when market participants are keen to know whether and to what extent the ongoing battle to contain the virus is affecting activity around the world.

You can count Monday’s PMIs as a sign that factory activity is “persevering” (as Bloomberg Economics put it), even if, to quote the same note, “the coming months will remain challenging as surges of infections… undermine demand.”


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