Key Asia Markets PMI Falling

Multiple key Asian economies released their purchasing managers’ index data for July this week. The PMI is an indicator of economic health across a nation’s manufacturing and service sectors.

The monthly metric is calculated using survey data collected from senior executives at hundreds of companies (the sample size varies by country). The survey is comprised of several elements, including new orders, factory orders, employment levels, suppliers’ delivery times and inventories, Nasdaq reported.

Most countries noted diminished production during the month, but why was this the case?

The global market is increasingly cautious as it continues to digest the latest developments that could become a full-fledged trade war between the US and China. Reuters reported earlier this week that US President Donald Trump is mulling over raising tariffs on over $200 billion in Chinese goods to 25% from the previous 10% level.

Therefore, bystanders are reducing import demand and scaling back production to hedge against any potential further escalation.

Should tensions continue to grow, one could be witness to further production decreases around the world.

 China

The Caixin China General Manufacturing PMI for the month of July stood at 50.8, marking a 0.2-point decrease from the month before.

The PMI scale runs from 1-100, with any figure above 50 marking economic expansion, while values below the threshold signify contraction.

While China’s July PMI denotes economic growth, it represents the country’s lowest improvement since November of last year. Caixin noted that “optimism towards the year ahead remained subdued amid concerns surrounding tough market conditions, strict environmental policies and the potential impact of the US-China trade war.

Employment in China’s manufacturing sector trended downward as some firms were forced to downsize. Moreover, although the rate of inflation softened, input prices rose in July as raw material prices continued to increase. Chinese goods producers boosted buying activity domestically, but new export orders saw its steepest drop in 25 months.

 India

The Nikkei India Manufacturing PMI fell to 52.3 from the month-ago level of 53.1, as the nation saw softer rises in output, new orders, and employment.

Domestic manufacturing has now risen for the last 12 months, with July’s data representing the second-strongest performance (after June) since January. Unlike China, export orders continued to rise for the ninth straight month. Steel and crude oil were among the input costs that inflated during the period as the global market continued to feel the aftershocks of US-China tariff actions.

While India’s PMI fell sequentially, IHS Markit notes that manufacturing companies hold an optimistic outlook on output for the next 12 months.

 Japan

The Nikkei Japan Manufacturing PMI declined to 52.3 in July, from 53.0 in June. New orders saw their softest increase since October of 2016, while output rose at its slowest rate in four months.

Survey data pointed to unchanged export sales, now marking the third-straight period of static oversea order volume. Although Japanese labor costs continue to rise, employment grew at a steady pace. Like China and India, Japan felt the impact of raw material price increases, seeing its strongest rate of input cost inflation in over seven years, according to IHS Markit’s analysis.

 South Korea

South Korea took one of the largest hits during July. The Nikkei South Korea Manufacturing PMI was 48.3, down further from 49.8, signaling the strongest level of economic contraction since November 2016.  

According to the report, firms sought to reduce costs by cutting inputs and completed goods. Job cutting was also encouraged. July marked the fifth-consecutive month in order volumes, while export sales were largely unchanged. South Korea’s aging population remains an issue and contributed to the prolonged fall in the nation’s workforce.

IHS Markit mentioned that output would increase in the next 12 months, but positive sentiment fell to ten-month lows.

Seven out of the ten members of the Association of Southeast Asian Nations reported their July figures. The Nikkei ASEAN Manufacturing PMI read as follows: Vietnam (54.9), Philippines (50.9), Indonesia (50.5), Singapore (50.2), Thailand (50.1), Malaysia (49.7) and Myanmar (47.9).