Global Manufacturing PMI declines in May but confidence lifts from April's low

The Global Manufacturing PMI fell to 49.6 in May, signaling a second consecutive month of deteriorating worldwide manufacturing conditions, with the steepest output declines in Canada and Mexico due to US tariffs. US producers reported the largest inventory accumulation and steepest rise in selling prices, attributed to tariff-related supply issues, while prices fell in Asia and the Eurozone. Despite these challenges, manufacturers' year-ahead outlook improved, particularly in the Eurozone, suggesting a potential peak in business uncertainty.

Analysis

Global manufacturing conditions contracted for a second consecutive month in May, with the J.P. Morgan Global Manufacturing PMI compiled by S&P Global Market Intelligence falling to 49.6 from 49.8 in April, signaling a modest deterioration. Significant regional variations were evident, heavily influenced by US tariffs: Canada and Mexico reported the steepest output declines, while mainland China experienced a marked drop in production – its first since October 2023 and the sharpest since November 2022 – and a fall in exports. Conversely, Eurozone manufacturing output expanded, with robust increases in several member states contributing significantly to regional performance. A critical factor was the unprecedented surge in US input inventories, the largest in over 18 years of survey data, as companies stockpiled to preempt tariff-related supply issues and price increases; this raises concerns that recent output and export growth in some economies may be temporary due to tariff front-running. Consequently, US producers reported the steepest rise in selling prices since November 2022, contrasting with falling prices in Asia and the Eurozone, and US supply delays remained high. Despite these challenges and the overall PMI contraction, manufacturers' year-ahead outlook improved globally in May, most notably in the Eurozone, suggesting that while uncertainty related to the tariff environment remains elevated, business pessimism may have peaked.

Key Decisions for Investors

• Investors should closely monitor the potential unwinding of the significant US inventory accumulation, as this tariff-driven front-running could lead to a subsequent slowdown in production and trade volumes for US suppliers.
• Consider the divergent regional manufacturing trajectories, with the Eurozone demonstrating relative resilience and improved sentiment, potentially offering more stable investment opportunities compared to North American and specific Asian markets currently impacted by US tariffs and resultant cost inflation.
• Maintain a degree of caution due to the headline PMI remaining in contractionary territory and persistent global trade uncertainties, even as forward-looking sentiment shows improvement, particularly assessing exposure to sectors and regions most vulnerable to prolonged supply chain disruptions and tariff-induced price volatility.