Global Factories Struggle as Job Losses Mount and Demand Weakens

Global manufacturing continues to face significant headwinds as the JPMorgan Global Manufacturing Purchasing Managers Index, compiled by S&P Global, indicates a persistent decline in business conditions. The PMI for October fell to 48.8 from September's 49.2, marking the fourteenth consecutive month of deterioration.

Production volumes edged lower, driven by a continued drop in order books. A notable lack of demand has led to a pessimistic outlook among businesses, prompting further reductions in material purchases and workforce numbers. The rate of job cuts has reached levels not seen since 2009, with the exception of the initial months of the COVID-19 pandemic.

The downturn was most severe in Europe, with Germany leading the contraction among manufacturing economies. Japan and mainland China also reported declining output, while the United States and India presented a contrasting picture. The U.S. experienced a modest uptick in production, and India maintained a significant growth margin, continuing its manufacturing boom.

Global factory output fell for the fifth month in a row in October, with the output index signalling an acceleration in the rate of contraction. This trend aligns with official data, which shows a 1.0% decline in global output compared to the previous year, the steepest drop in three years.

The depletion of backlogs of orders, which had been supporting activity levels, is now a growing concern as they have been diminishing for the past 16 months. The lack of new orders to replenish these backlogs has extended the demand downturn to sixteen months, reflecting a sustained decline in global trade volumes.

With a gloomier business outlook, companies are scaling back on future production expectations and reducing inventory levels in anticipation of weak sales. This has led to significant job cuts and reduced input purchasing, with the rate of employment decline reaching a peak not observed since August 2020, barring the early pandemic period. 

Europe reported the steepest production losses, with the eurozone and the UK experiencing some of the most significant declines since the global financial crisis, excluding the initial lockdown months. Meanwhile, Asia saw a slowdown in output growth, and the U.S. reported a slight increase in production.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, highlights the challenges faced by global manufacturing sectors and the varying geographical impacts. The PMI data, which provides insights into economic health and key drivers, is a crucial tool for professionals in understanding market directions and opportunities.