MANUFACTURING PMIs
Eurozone: PMI dips back into contraction as eurozone factory orders decline
The HCOB Eurozone Manufacturing PMI slipped back into contraction in September, reversing the first improvement seen in over three years during August. Falling from 50.7 in August to 49.8, the headline index signalled a deterioration in factory operating conditions across the euro area. That said, the decline was only marginal overall.
Across the eight monitored euro area nations covered by the Manufacturing PMI survey, there was an even split between those in expansion and those in contraction. At the top of the rankings was the Netherlands, where conditions improved at the fastest pace since July 2022. Greece and Spain continued their growth trends, although upturns slowed on the month. The final eurozone country in expansion mode was Ireland. Weakness was recorded across the currency union’s three biggest economies – Germany, France and Italy – with respective Manufacturing PMIs posting below the critical 50.0 level.
Pulling the headline index into the contraction zone was a marked decline in its weightiest component, new orders. After rising for the first time in almost three-and-a-half years in August, the volume of new orders received by eurozone manufacturers decreased in September. The pace of contraction was mild but nevertheless the fastest since March. Export markets were a drag on total sales, with new business received from overseas falling for a third month in succession and to a slightly stronger degree. That said, manufacturing production volumes expanded, stretching the current sequence of growth that began in March. The upturn lost momentum, however, easing from August’s solid pace.
Further growth in output was achieved despite ramped up job cutting at eurozone factories. Workforce numbers fell at the quickest rate in three months. Manufacturers were also able to make greater inroads to their backlogs of work in September. The rate of reduction in outstanding orders was the most marked since June.
Purchasing was reduced by surveyed companies at the end of the third quarter. After coming close to stabilising as recently as July, the rate of decline in buying activity has accelerated in back-to-back months. Subsequently, manufacturers’ demand for inputs shrank at the steepest pace since April. Destocking remained prevalent across the goods-producing sector, with both pre- and post-production inventories falling at solid rates during the latest survey period. Stock depletion came amid evidence of pressure on supply chains as delivery times lengthened to the greatest extent in just shy of three years.
For the first time since June, eurozone manufacturers reported lower operating costs – a notable deviation from the solid inflationary trend witnessed across the survey on average. The decrease was only marginal, however. In turn, eurozone manufacturers responded by lowering their own charges. This marked the fifth month in succession that surveyed businesses have discounted prices.
Looking ahead, euro area goods producers were optimistic that output would be higher than present levels in 12 months’ time, although expectations were their weakest since April.
Japan: Output declines at quickest rate in six months in September
The headline S&P Global Japan Manufacturing Purchasing Managers’ Index™ (PMI®) fell from 49.7 in August to 48.5 in September. Posting below the crucial 50.0 value, the index signalled a modest deterioration in the health of the sector that was the most pronounced since March. Business conditions have now worsened in 14 of the past 15 months.
Intermediate goods producers recorded a solid deterioration in conditions, while both consumer and investment goods segments recorded only marginal rates of decline.
Weighing on the headline PMI was a solid and accelerated decrease in manufacturing output during September. Furthermore, the rate of contraction was the quickest seen in six months, with survey respondents often linking the fall to reduced inflows of new work.
The overall amount of new business placed with Japanese manufacturers fell at a solid rate that was the fastest since April. Companies often mentioned that weaker market conditions had dampened customer spending and made clients more cautious with regards to their inventory levels.
New export orders also decreased again at the end of the third quarter. Though solid, the rate of contraction eased from August’s 17-month record. The latest drop in export sales was partly linked to lower demand across China and the impact of US tariffs.
Hiring activity meanwhile slowed notably in September. Moreover, the latest increase in employment at Japanese manufacturers was the weakest recorded since February and only fractional.
At the same time, there were further signs of spare capacity, with outstanding orders falling further in September. Notably, the rate of backlog depletion was the sharpest seen since January. Companies often mentioned that fewer new orders had enabled them to process and complete unfinished workloads.
Reduced customer demand also led firms to cut back on purchasing activity again in the latest survey period. The rate of reduction was the second-quickest recorded over the past year-and-a-half and solid. Companies also downwardly adjusted their inventories of both purchased and finished items.
Although input buying continued to decline, average supplier performance deteriorated again in September, and at the fastest rate in a year. Some monitored companies linked longer lead times to stock and labour shortages at suppliers.
The rate of input price inflation edged up to a three-month high and was sharp. Companies often linked higher expenses to increased raw material and labour costs. However, the pace of inflation remained much slower than that seen on average over the first half of the year.
Manufacturers responded to higher input prices by raising their output charges in September. The rate of inflation quickened from August to a solid pace that was stronger than the series long-run trend.
Japanese goods producers were generally confident that output will rise over the next year. However, the degree of positive sentiment slipped to a five-month low, with some firms concerned that reduced customer spending and US tariffs could dampen their performance.
Asia Manufacturing PMIs Show Diverging Impact of Tariffs Goods producers in Japan and Taiwan flagged deteriorating demand
S&P Global’s latest purchasing managers indexes showed a broad uptick in output at the end of the third quarter, but also weak spots in exports as trade uncertainty simmers, keeping demand subdued.
Goods producers in export powerhouses Japan and Taiwan flagged deteriorating demand in September, and optimism about the outlook soured.
Firms in Taiwan noted steeper falls in output and new orders, amid reports of muted global demand tied to U.S. tariffs and client hesitancy, S&P said.
That was echoed in the Japan survey too, where sentiment hit a five-month low and manufacturers reported softer demand in key markets like China, said Annabel Fiddes, economics associate director at S&P Global Market Intelligence.
On the flipside was South Korea. S&P’s manufacturing PMI for the export heavyweight rose above the 50 mark separating expansion from contraction last month. New export orders rose for the first time in six months amid improving demand from key markets in Asia.
Things were brighter in China too. Both production and demand stayed in expansionary territory in September, with new export orders returning to growth for the first time since March, according to the RatingDog PMI compiled by S&P Global.
Other countries in Southeast Asia also saw a pickup in new orders and purchasing activity. (…)
For Shivaan Tandon, emerging markets economist at Capital Economics, the Asian PMI data wasn’t much to cheer about.
“The September PMI readings for most countries in Asia remained weak and we continue to expect manufacturing activity in the region to struggle in the near term,” Tandon said in a note.
Growth in Asia’s economies looks set to weaken through the end of 2026, he said, as tighter fiscal policy and softer exports offset resilient consumption.
Labor Market Going Nowhere
The latest JOLTS report furthered the notion that the labor market is merely running in place. Openings were little changed in August, keeping the vacancy rate at a cycle low of 4.3% and the number of openings just below the number of unemployed workers. With hiring demand still tepid, more workers are opting to stay put in their current job, further tempering upward pressure on wages. A low rate of layoffs remains one of the few bright spots in the jobs market, but the low quit rate elevates the risk of layoffs jumping higher.
Source: U.S. Department of Labor and Wells Fargo Economics
Demand for labor is being hit on multiple fronts. Rapid technological change, concerns over the growth outlook following changes to trade and immigration policy and the federal government’s efforts to shrink its workforce have all weighed on job availability this year. These forces were on display in the August JOLTS figures, which showed the vacancy rate remaining at a cycle low of 4.3%.
The dwindling availability of jobs has been noticed by consumers. In a separate report this morning from the Conference Board, the share of workers viewing jobs as “plentiful” less those viewing jobs as “hard to get” fell to a fresh cycle low. The more timely (and stable) picture from Indeed job posting shows the downward slide in hiring intentions, while moderating, has yet to be arrested, fueling our caution over the near-term pace of employment growth even as layoffs remain low.
Overall, firms’ appetite to hire remains tepid. The hiring rate slipped to 3.2%, its lowest since last summer’s lull in June 2024 and unseen in nearly a decade before then. At the same time, employers remain reluctant to let go of existing workers. The layoff rate held steady at 1.1% for the third straight month. Yet, the “no hire” side of the “no hire, no fire” environment has stymied job switching opportunities and has weighed on workers’ propensity to voluntarily exit current roles. The quit rate dipped to 1.9% in August, back down to its cycle low. (…)
Source: U.S. Department of Labor, Indeed Inc., Conference Board and Wells Fargo Economics
The delicate balance between labor demand and supply has been well proxied by the job opening-to-unemployed ratio, which slipped below 1 in August (0.98 to be specific). With hiring intentions still subdued and retention remaining strong, the pressure on employers to hike wages remains contained. Taken together with solid productivity growth since the pandemic, the labor market is not a significant source of inflationary pressure at present.
Ed Yardeni:
The “jobs-hard-to-get” series is highly correlated with the unemployment rate and suggests that it might have risen in September from August’s 4.3%. However, while the former indicates that the duration of unemployment may be increasing, weekly initial unemployment claims indicates that layoffs remain low.
Taiwan Rejects US Demand for Half of Chips to Be Made in America
(…) “This issue was not discussed in this round of negotiation, and we will not agree to such a condition,” Vice Premier Cheng said.
US Commerce Secretary Howard Lutnick said in a NewsNation interview published this week that the US has held discussions with Taipei about the proposal as a way to reduce the risks of over-reliance on overseas chipmaking. (…)
Brookfield Predicts $7 Trillion of Capital Needed for AI Growth
(…) Brookfield AM is launching a dedicated strategy focused on developing infrastructure for AI. The firm is marrying up its infrastructure, renewables and real estate into one AI strategy to “produce holistic solutions because a lot of these are going to be large industrial investments that we need to make,” Peer Marshall said in an interview with Bloomberg TV on Wednesday. (…)
GDP – AI = 0?
Harvard economist Jason Furman:
Investment in information processing equipment & software is four per cent of GDP. But it was responsible for 92 per cent of GDP growth in the first half of this year. GDP excluding these categories grew at a 0.1 per cent annual rate in the first half.
If so, Tariff Man has been twice lucky with the AI boom and lower oil prices.
The unanswered questions: will AI capex continue, at what pace, and how profitable will it actually be?
Pfizer to cut drug prices in exchange for tariff relief, Trump says
Pfizer and U.S. President Donald Trump on Tuesday said they had cut a deal in which the U.S.-based drugmaker agreed to lower prescription drug prices in the Medicaid program to what it charges in other developed countries in exchange for tariff relief.
Trump also said Pfizer would offer that most-favoured-nation pricing on all new drugs launched in the U.S. and flagged that other drugmakers will follow suit. (…)
U.S. patients currently pay by far the most for prescription medicines, often nearly three times more than in other developed nations, and Trump has been pressuring drugmakers to lower their prices to what patients pay elsewhere.
Pfizer will be part of the White House’s new direct-to-consumer website for Americans to buy drugs, called TrumpRx, that will launch in 2026. (…)
Several drugmakers have already set up direct-to-consumer pricing for some of their drugs, to be listed on a new website from the U.S. lobby group PhRMA, and raised the prices of their therapies in Britain in line with Trump’s desire to offset price decreases in the U.S. (…)
Pfizer is the first drugmaker to announce a deal. Trump sent letters to 17 leading drug companies in July telling them to slash prices to match those paid overseas. He asked them to respond with binding commitments by Sept. 29.
Sources at five large drugmakers told Reuters the Trump-Pfizer announcement caught their companies by surprise and that they watched the White House news conference to gauge its implications.
Pfizer will invest US$70-billion in research and development and domestic manufacturing and received a three-year grace period during which its products will not be subject to the pharmaceutical-targeted tariffs, “as long as, of course, we move the products here,” Bourla said.
Pfizer said a large majority of its primary care treatments and some select specialty brands will be offered at savings that will range as high as 85 per cent and on average 50 per cent. According to a poster on display at the event, those will include rheumatoid arthritis drug Xeljanz, which carries a list price of over US$6,000 a month, migraine treatment Zavzpret, dermatitis drug Eucrisa and post-menopausal osteoporosis medication Duavee.
Drugmakers’ shares rose because the price concessions are limited to Medicaid, said Daniel Barasa, portfolio manager at investment firm Gabelli Funds.
Barasa said the deal was “a highly favourable outcome for the industry. Given that Medicaid already benefits from substantial discounts and rebates – exceeding 80 per cent in certain cases – the incremental impact on manufacturers is relatively minimal.”
New Medicaid prices are also set to launch in 2026, a senior administration official said on a media call. The most-favoured-nation pricing is based on the lowest price paid in eight other wealthy countries after fees and rebates.
More than 70 million people are covered by Medicaid, the state and federal government program for low-income people. But drug spending in the program is dwarfed by that of its sister program Medicare, which covers people aged 65 and older or who have disabilities and is not included in Tuesday’s announcement.
Medicare’s drug spending reached US$216-billion in 2021, while Medicaid’s gross spending was around US$80-billion.
Anna Kaltenboeck, a health economist at Verdant Research, said that if Pfizer and other companies provide supplemental rebates to Medicaid, that could be significant, as it would support states struggling with the cost of specialty drugs.
Medicaid spends less on drugs than other payers, however, so the impact would be less dramatic than if the reductions applied to Medicare, she said.