The world is facing major geopolitical uncertainty. Two major geopolitical conflicts, with no resolution in sight, have disrupted energy markets and supply chains. Additionally, the US political election lacks a clear frontrunner and incumbent governments across the globe have faced backlash from their constituents. These geopolitical issues and lingering effects of the pandemic have meant that manufacturing have deteriorated on both side of the Atlantic and there appears to be little changing over the next few months.
U.S. businesses are performing robustly, although disparities exist among different sectors. The service sector is experiencing strong growth, whereas manufacturing has seen a decline in output for the second consecutive month. New orders have plunged to a 21-month low and show little sign of recovery. During the COVID pandemic, there was excess consumer spending on manufactured goods, which is now stabilizing. Capital expenditure intentions remain low, closely correlating with the manufacturing PMI (an indicator derived from a survey of purchasing managers that provides insights into the manufacturing market). Overall U.S. growth may continue to remain strong, but manufacturing will struggle in the near-term.
In Europe, the manufacturing sector is also facing a downturn, marked by a 9-month low in new orders. The ongoing conflict in Ukraine has kept energy costs elevated throughout Europe, and without a foreseeable resolution, there appears to be no relief from these high prices. This situation significantly affects European manufacturing, and the influx of inexpensive exports from China further challenges local manufacturers who are unable to compete. Consequently, European manufacturing is expected to struggle alongside that of the United States.
In the upcoming quarters, multinational corporations in the US and Europe might encounter difficulties, as manufacturers face various hurdles arising from geopolitical tensions and the persisting impacts of the pandemic. Investors should exercise caution and remain vigilant, particularly regarding cyclical stocks.
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This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.
Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices does not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.
Purchasing managers’ indexes (PMI) are economic indicators derived from monthly surveys of private sector companies. The three principal producers of PMIs are the Institute for Supply Management (ISM), which originated the manufacturing and non-manufacturing metrics produced for the United States, the Singapore Institute of Purchasing and Materials Management (SIPMM), which produces the Singapore PMI, and the Markit Group, which produces metrics based on ISM’s work for over 30 countries worldwide. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
