Manufacturing PMI points to sustained growth in October but expectations worsen

Worldwide manufacturing business conditions continued to improve in October, though upturns in new orders and production were again insufficient to either prevent a fall in backlogs of work or generate a net increase in staffing levels. Business confidence about the year ahead also fell worldwide to one of the lowest levels seen over the past three years, underscoring downside risks to the global manufacturing outlook in the coming months.

Trends varied from especially strong expansions in India, Thailand, Vietnam and some eurozone economies, to sharp downturns in other parts of Europe as well as Taiwan, Russia, Brazil and Japan.

While a globally benign price pressures environment was reported, a notable exception was the elevated input cost inflation in the US, largely linked to tariffs.

PMI in growth territory

The Global Manufacturing PMI, sponsored by J.P. Morgan and compiled by S&P Global Market Intelligence, registered 50.8 in October from 50.7 in September. Although signalling only a very modest improvement in manufacturing conditions, the past three months have seen the PMI at its highest average for just over three years.

The headline PMI was supported by a further rise in global production, which rose for a third successive month alongside a commensurate increase in new orders. However, both output growth and order book inflows remained only modest: the survey's output index, for example, is indicative of production growing globally at an annual rate of just 1.5%.

Falling backlogs

The latest upturn in demand was insufficient to prevent a further fall in global backlogs of work, which have now declined for 40 successive months to indicate the persistence of excess capacity relative to demand. The fall in backlogs of work in October was the largest for three months.

The global demand weakness was centered on exports, with new export orders falling at an increased rate in October to signal a near-stalling of overall global trade flows.

Falling expectations

The depletion of order book backlogs, plus concerns over the economic environment, contributed to increased global pessimism in October. Future output expectations fell worldwide to their lowest since April, when US tariff announcements had clouded the outlook. Expectations are now among the lowest recorded over the past three years.

The forward-looking orders-to-inventory ratio also remained subdued, suggestive of output growth running at a sustained, yet sluggish pace in the near-term.

Lack of hiring

The lack of future output optimism and falling order book backlogs also led to further lack of hiring. Despite the overall rise in global production and new order inflows in October, employment was unchanged during the month as firms typically focused on productivity gains rather than the expansion of capacity.

Worryingly, reports of companies increasing their staffing levels in response to stronger customer demand continued to run at one of the lowest levels seen over the past two decades. Only spells such as the global financial crisis and the COVID-19 pandemic have seen weaker sales-driven hiring in the world's factories.

Muted price pressures

In terms of pricing, global manufacturing inflationary pressures remained subdued in October. Although both input costs and average factory gate selling prices rose, rates of increase were broadly in line with the muted averages recorded over the past two years.

The benign global inflation environment was helped by few instances of supply chain delays. While average supplier delivery times lengthened slightly in October, the incidence of delays remained low by historical standards.

Divergent PMIs

Global manufacturing growth was again led by India, but October also saw increasingly strong performances in both Thailand and Vietnam as producers in these economies reporting a thawing of concerns over the impact of US tariffs. Thailand's PMI was the highest since May 2023 while Vietnam's PMI hit the highest since July 2024.

The US also reported another above-average PMI reading in October, and has now led the major economies in terms of manufacturing performance over the year to date. That said, the survey showed US production being buoyed by inventory building (the month saw an unprecedented rise in unsold stock), which suggests US growth could fade in the coming months. In contrast, inventories of finished goods fell in the rest of the world.

An easing of the tariff-related downturn was meanwhile reported in Canada during October, with the PMI at its highest since January, and Mexico's downturn remained only very modest compared to that seen earlier in the year. Business conditions also improved in mainland China, albeit at a reduced rate compared to September, as exports fell back into decline, dropping at the sharpest rate since May.

Strong performances in Greece, Spain and the Netherlands meanwhile helped keep the eurozone PMI out of contraction territory at 50.0, offsetting declines in France, Austria and, to a lesser extent, Germany. However, the stabilization of manufacturing in the eurozone in recent months is itself a welcome improvement on the continual decline previously seen since mid-2022.

The UK also showed a near-stabilization, the PMI having now been below 50.0 for 13 successive months, albeit in part helped by the restarting of auto production across supply chains after September's output was hit by a cyber-attack at JLR.

At the other end of the scale, the steepest deteriorations of manufacturing conditions were reported in Turkey, the Czech Republic, Romania and Taiwan, closely followed by Russia, Japan and Brazil, underscoring how some of the world's largest economies remain under stress.

Elevated US cost growth

While overall global inflationary pressures remained benign, there were observable differences among the major economies, with the US notably once again reporting elevated input cost inflation. Only Mexico and Indonesia reported higher input cost inflation than the US. Companies in the US commonly attributed higher costs to the impact of tariffs. In contrast, input prices fell in mainland China, rose only marginally in the eurozone and increased at only modest rates in Japan and the UK.

Below-par sentiment in the US, Europe and China

In terms of future output expectations, regional variations were also notable, with optimism dropping further below its long-run average in mainland China, down to one of the gloomiest of all economies surveyed, but also dropping markedly in the US. Eurozone optimism has also dipped below its long-run average over the past two months, contrasting with much more upbeat reports earlier in the year, though sentiment is mixed across the region. Levels of gloom have meanwhile eased in Japan, the UK and Canada.

Relative to long-run averages, manufacturers are most upbeat about the year ahead in Thailand, Italy, Austria and Greece, but are gloomiest in Romania, Canada, Taiwan and France.

Access the latest global PMI press release here.

Chris Williamson, Chief Business Economist, S&P Global Market Intelligence

Tel: +44 207 260 2329

chris.williamson@spglobal.com

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Purchasing Managers' Index™ (PMI^®) data are compiled by S&P Global for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.

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