Decline in Factory Output Eased in May but Recovery Set to Be Slow
June 01 2020 - 6:47AM
Dow Jones News
By Paul Hannon
Factories around the world continued to report low levels of
output and fresh layoffs as governments moved gingerly to lift
restrictions imposed to limit the spread of the novel coronavirus,
but the figures offer some hope that manufacturing is at the start
of a slow path to recovery.
Surveys of purchasing managers at manufacturers in Asia and
Europe indicated that in most countries, the decline in activity
slowed from the record fall seen in April. Only in China did
factories report an increase in activity, but the surveys suggested
that its nascent economic recovery is already beginning to
stall.
The U.S. Institute for Supply Management's manufacturing index
for May, due at 10 a.m., is expected to rise to 44.0 from 41.5 the
prior month.
The surveys indicate that the worst might be over for
manufacturers, and activity could start to increase in coming
months. But the road back to the levels of output and employment
seen at the end of last year is set to be long and bumpy.
"Whether growth can achieve any serious momentum remains highly
uncertain, however, as demand looks set to remain subdued by social
distancing measures, high unemployment and falling corporate
profits for some time to come," said Chris Williamson, chief
business economist at IHS Markit, the data firm that compiles most
of the surveys.
In many countries, factory managers reported that restrictions
on movement continue to make it difficult for them to operate at
normal levels of output. But they also reported that weak demand is
holding them back, with new orders continuing to fall.
In a sign that factories don't expect conditions to improve
rapidly, many reported further job cuts. In India and South Korea,
those reductions in payrolls were the largest on record.
One problem highlighted by the surveys is that even where local
restrictions have been removed, or were never very severe to begin
with, the return to normality is being impeded by weak export
demand.
China -- the first country exposed to the virus -- entered
lockdown earlier than other countries. It also exited its lockdown
earlier, but May surveys of purchasing managers pointed to a large
decline in export orders.
That was also true of South Korea, which chose not to impose
mandatory lockdowns and focused instead on widespread testing and
tracing of those infected by the virus, and the people with whom
they had come into contact.
Separate figures released Monday showed South Korea's May
exports were down 23.7% from a year earlier to $34.86 billion
following the prior month's revised 25.1% contraction.
"Crucially, the country's main export markets are exiting
lockdown a lot slower than their entry into it," said Miguel
Chanco, an economist at Pantheon Macroeconomics.
China's Caixan Purchasing Managers Index rose to 50.7 from 49.4,
a sign that manufacturing activity increased after having fallen in
April. A reading above 50.0 indicates an increase in activity,
while a reading below that level indicates a decrease.
However, other manufacturing powerhouses continued to experience
deep declines. Germany's PMI rose only slightly, to 36.6 from 34.5,
while Japan's PMI fell to 38.4 from 41.9.
Across the eurozone, Italy moved closest to a manufacturing
recovery, as its PMI rose to 45.4 from 31.1.
According to the CPB Netherlands Bureau for Economic Policy
Analysis, global industrial production was 4.2% lower in the first
three months of the year than in the final quarter of 2019. The
surveys of purchasing managers suggest the decline in the three
months through June might be even larger.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
June 01, 2020 06:32 ET (10:32 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.