Economic Blog
October 25, 2019
A U.S.-China trade truce wasn’t enough to spark global manufacturing activity in October.
Manufacturing activity around the world remains sluggish despite trade progress, according to preliminary Markit Purchasing Managers’ Index (PMI) data for October. As shown in the LPL Chart of the Day, manufacturing PMIs for the Eurozone, Germany, and Japan remained near multi-year lows in October.
U.S. and China relations have improved this month as both sides became increasingly optimistic before face-to-face talks earlier this month. On October 11, the United States announced that it had reached a verbal trade agreement with China, which both parties are expected to sign at the Asia-Pacific Economic Cooperation (APEC) summit in November. Positive headlines have encouraged investors that the United States and China could be finding common ground in their trade dispute, which has weighed on global demand and curbed manufacturing activity internationally.
We weren’t expecting to see a significant reversal in manufacturing this quickly, but there were surprisingly few signs of optimism in the October Markit PMI reports. New orders, a gauge of future manufacturing activity, continued to decline across the globe, while measures of employment largely weakened.
“We’ve taken one step toward a U.S.-China trade deal, but it may take some time for global demand to pick up,” said LPL Financial Senior Market Strategist Ryan Detrick. “Manufacturing is unlikely to meaningfully improve without significant progress on trade.”
U.S. manufacturing has also softened this year amid slowing global demand, even though it has been fairly resilient compared to other regions. The Institute for Supply Management’s (ISM) manufacturing PMI, our favorite gauge of domestic manufacturing health, has been in contractionary territory for two straight months.
We’ll be watching for signs of recovery as October economic data starts to roll in, including the ISM report on November 1.
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