Global manufacturing PMI at lowest level since Aug. '05

The global manufacturing economy lost noticeable momentum at the start of 2007. At 52.4 in January, the JPMorgan Global Manufacturing Purchasing Managers’ Index remained above the no-change mark of 50.0 for a 43rd consecutive month, but fell to its lowest level since August 2005. Production growth slowed to a 3.5-year low.

The latest release saw some slight revision to the back data of the global manufacturing indexes. These revisions are the consequence of the application of an updated weighting structure to the global indicators and ISM's annual assessment of the seasonal adjustment factors applied to the United States data.

"PMI data suggests a sluggish start for the manufacturing sector in 2007, with IP growth expected at 2 to 3 percent Seasonally Adjusted Annual Rate,” said David Hensley, director of global economics coordination at JPMorgan. “The key forward-looking new orders component also pointed to slower expansion. The good news is the survey's implication that the rate of inventory accumulation fell sharply. Traditionally, a rising ratio of new orders to inventory foreshadows a pickup in IP growth."

Growth of the world manufacturing sector remained firmly centered on the Eurozone in January. However, latest national PMI data suggested that the upturn in this region has likely already passed its peak. Although still robust, production in the euro area expanded at its least marked rate for 11 months. New orders increased at their slowest pace in a year. In contrast, employment rose for the 11th month running and at the fastest pace since November 2000. Within the Eurozone, Germany remained the principal growth engine.

The tentative recovery of the U.S. manufacturing sector faltered at the start of 2007. The U.S. PMI posted 49.3, its lowest reading since April 2003. Output declined for the second time in the past three months and new order growth slowed to a near-negligible pace. U.S. manufacturing jobs declined for the third successive month.

There were slight improvements in the rates of expansion of Japanese manufacturing output and new orders, although growth was well below their respective averages for 2006.

At 53.0 in January, down from 54.3 in December, the Global Manufacturing Output Index signaled that growth of global IP had slipped to a level of around 2 to 2.5 percent SAAR. The Global Manufacturing New Orders Index pointed to slower expansion in new order volumes, posting a 20-month low of 53.1.

Growth of international trade volumes continued to ease in January, with the rate of increase at its lowest in over one-and-a-half years. Export orders for U.S-manufactured goods rose at the weakest pace since last July. France saw a marked easing in the rate of expansion of new export business.

At 59.6 in January, the Global Manufacturing Input Prices Index signaled a slight pick-up in the already elevated rate of increase in average input costs. Nevertheless, purchase price inflation remained well below the highs seen in mid-2006.

The Global Manufacturing Employment Index registered 52.0 in January, to point to a further incremental improvement in the rate of jobs growth. Employment increased in the Eurozone, Japan, China and the United Kingdom, but fell in the U.S.

Stocks of purchases contracted in January, ending a run of six successive months of marginal growth.