Recent data from Standard Chartered highlights a concerning trend in global manufacturing as Purchasing Managers’ Indexes (PMIs) reveal a sharper contraction in May compared to April. The billowing concerns reportedly point toward a slowdown in manufacturing, transportation and construction. These results highlight the quickly diminishing effect of front-loaded factory production, which had until recently propped up production numbers.
The global manufacturing landscape has undergone serious upheaval. The rate of decline of PMIs has greatly quickened, influenced by a confluence of factors. One of the more alarming trends mentioned in the report is intermediate and investment goods production moving into negative territory from April. This downturn highlights the broader challenges faced by manufacturers as they navigate a complex economic environment influenced by tariffs and trade policy uncertainty.
Despite these challenges, the report notes a positive development: consumer goods output has expanded for the 22nd consecutive month. This upturn stands in stark relief to the accompanying downturn seen in every other major sector, painting an uneven portrait of manufacturing across the globe.
The recent US-China tariff truce has lifted spirits, boosting prospects across many developing and advanced economies alike. The report suggests that the fading boost from previous front-loading is contributing significantly to the current deterioration in manufacturing PMIs. With the benefits of front-loading fading, a number of economies are feeling the effects of a return to trend in manufacturing production.
“Global aggregate PMI surveys for May suggest a faster contraction in manufacturing versus April, on fading tailwinds from front-loaded output and elevated trade policy uncertainty,” stated Standard Chartered analysts.
The data reveals a notable decline in global employment levels across sub-sectors, further underscoring the struggles faced by manufacturers worldwide. Interestingly, certain economies have been able to circumvent this economic spiral. Take India, for example, which has done better than most countries in the world despite the ongoing global manufacturing slowdown.
Even more worrisome, the movement into negative production for intermediate and investment goods. These sectors are essential to maintaining our overall economic growth and technological innovation. The contraction could be a warning sign of more troubling supply chain problems that have been worsened by the recent tariff wars.
“Meanwhile, input and output prices moderated month-over-month, as reported supply shortages remain relatively muted (except for steel and aluminium, which continue to face US sectoral tariffs, as well as textiles, given the end of de minimis exemptions), and as reported oil price pressures declined for the first month since October 2024,” noted the analysis.
Even as manufacturing PMIs have started to show the effects of both recessionary activity and employment staunching, business assessments of future activity have been rebounding up month-over-month. This increase is primarily due to a low base effect in April, the month before the US-China tariff truce was declared. While there is plenty of cause for optimism, that optimism is tempered by caution looking at an uncertain trade landscape.