Weak Demand Weighs On Manufacturers, But Waning Prices May Bring Relief

Several themes emerge from August's Global PMI data - and point to a weak near-term outlook for manufacturers, but some light at the end of the tunnel if and when inflationary pressures ease.

• Firms are pricing in slow demand into the year end as global inflationary pressures chip at consumer spending. New orders saw a sharp fall due to waning demand across the Eurozone, UK, US and Japan, whilst remaining robust in Australia.
• This will continue to weigh on overall output. Eurozone manufacturing output is already falling at the fastest pace since mid-2020, adding to recessionary fears.
• Cooling inflationary pressures across the surveys imply that August CPI data could show prices growth slowing, after several countries posted another round of surprisingly hot prints in July. This effect appears more delayed for Australia, where output costs are yet to ease.
• Optimism is improving (albeit still low) in the Eurozone, though have fallen further in the UK. Improvements in the Eurozone were largely underpinned by slowing prices which were expected to bolster future consumer purchasing power. However, energy prices and gas scarcity as a result of the Ukraine war remain of key concern (particularly in the EU).
• Australian manufacturing remains robust with new orders and production continuing to grow, albeit at a softer pace. The August ISM US PMI out Thursday - which was met with a hawkish market reaction - highlighted an expansion in new orders. But in this regard, the ISM PMI wasn't in line with the S&P PMI, which recorded falling orders.

Source: JPM, S&P