Manufacturing Weekly Economic Highlights | 3 March 2024

Welcome to our weekly manufacturing and economic newsletter, providing key insights and analysis on the latest developments in the global market. Stay updated and make informed decisions!

In this edition, we focus on the economic conditions in America, Europe, China, Thailand, as well as updates on the energy and logistics markets.

Americas

“USD closed modestly lower again this week”

“Global GDP forecast to be flat at 3.1% in 2024"

“US manufacturing PMI falls to 47.8; contracts for 16th consecutive month”?

“US durable goods orders down 6.1% for biggest decline in 4 years”

The USD Index (DXY) finished modestly lower again this past week, from 103.96 on 23 February 2024 to close at 103.89 on 1 March 2024.

The IMF recently updated its growth forecasts. Per its latest update, 2023 Global GDP is estimated at 3.1%, with 2024 forecast to remain at 3.1% and 2025 expected to accelerate slightly to 3.2%. Advanced Economies combined GDP was estimated at 1.6% for 2023, declining to 1.5% in 2024 and accelerating to 1.8% in 2025. The US 2023 GDP was estimated at 2.5%, and forecast to slow to 2.1% in 2024, and down to 1.7% in 2025. The Euro Zone was estimated at 0.5% in 2023, expanding to 0.9% in 2024 and 1.7% in 2025.

Emerging Markets GDP was estimated at 4.1% in 2023, holding steady at 4.1% in 2024 and accelerating slightly to 4.2% in 2025. China is forecast to underperform, with 2023 GDP estimated at 5.2%, slowing to 4.6% in 2024 and 4.1% in 2025. Indian GDP is estimated at 6.7% for 2023, slowing to 6.5% in 2024 and holding steady at 6.5% in 2025. Latin America and the Caribbean is expected to underperform, from an estimated 2.5% in 2023 to 1.9% in 2024 and 2.5% in 2025. However, The Middle East, Central Asia, and Sub-Saharan Africa are all expected to expand during the forecast period.

US manufacturing continued to struggle in February, with the Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) falling from 49.1 in January to 47.8 in February, as reported on 1 March by Reuters. This was the sixteenth consecutive month the PMI has remained below 50, signaling contraction. This is the longest contraction period since the period of August 2000 through January 2002. However, ISM’s customer inventories survey declined for the third consecutive month, signaling the likelihood of future orders and production growth in the coming months. Manufacturing comprises 10.3% of the US economy, and higher borrowing costs have constrained goods demand and equipment investments.

Eight US manufacturing industries reported growth in February, including apparel, leather products, primary metals, chemical products, and transportation equipment. Contracting segments included machinery, wood products, computer and electronics products.

US durable goods orders fell by 6.1% MoM and down 0.8% YoY in January, the biggest decline in nearly 4 years, and core capital goods orders were only up 0.1% MoM, signaling the US economy has lost momentum in early 2024, as reported on 27 February by Reuters. Civilian aircraft orders plunged 58.9% MoM in January following an increase of 1.0% in December, with Boeing commercial aircraft orders collapsing from 371 in December to 3 in January. Orders for motor vehicles and parts were down 0.4% MoM.

Forbes reported on 2 March on a note to clients by Bank of America Chief Strategist Harnett that US national debt is rising by $1 trillion USD every 100 days. This is supporting “debt debasement” trading including gold and bitcoin which are approaching all-time highs.

Meanwhile, Bloomberg reported on 19 October 2023 about an economic model that predicts consistently higher interest rates with 10-year treasury yields rising from an average of 3% over the past decade to 5.1% today and as high as 7% by the mid 2030’s. Reduced savings and productivity growth compared with prior decades are creating upwards pressure on the “Natural Rate of Interest,” while increased costs to address climate issues and to service debts arising from prior government “fiscal imprudence” further contributes to debt demand and higher interest rates.

Europe

“EUR ended sideways this week relative to the USD”

“EU Sentiment Indicator falls to 95.4”

“German unemployment stable at 5.9%”?

“Can a proposed German stimulus program revitalize its economy?”

The EUR finished sideways this week, from $1.083 USD per EUR on 23 February 2024 to end at $1.084 USD per EUR on 1 March 2024.

The Eurozone Sentiment Indicator fell to 95.4 in February as reported on 28 February by The Wall Street Journal. The eurozone sentiment indicator long-term average corresponds to a value of 100. Industrial, services, retail and construction confidence indicators all became more negative, whereas consumer confidence improved slightly.

German unemployment increased more than expected in February, growing by a seasonally adjusted 11,000 to 2.713 million persons. The jobless rate remained stable at 5.9%, as reported on 29 February by Reuters. However, the German Labor Minister said employers are hanging on to their existing staff due to the shortage of skilled labor. “The risk of being made redundant remains low.” However, the demand for new hires has declined. The German Government also slashed its 2024 GDP forecast from 1.3% to 0.2%.

Germany is reportedly preparing a stimulus package valued at around €7 billion ($7.6 billion USD), as reported on 1 March by Bloomberg. The package value is equivalent to approx. 0.16% of German GDP. The German economy has been battling fierce headwinds including high energy costs, exposure to the weak Chinese market, and geopolitical impacts from the Ukraine war.

China

“The CNY ended sideways again this week”

“China factory activity contracts for 5th consecutive month”

“Chinese CPI down 0.8%; only major economy struggling with deflation”?

“Industrial overcapacity driving goods deflation”

The CNY ended sideways again this week, from 7.195 per USD on 23 February 2024 to end at 7.196 per USD on 1 March 2024. CNY daily trading volatility has dropped markedly and abruptly starting on 9 February 2024.

China’s factory activity contracted for the fifth consecutive month in February, with the official gauge of Chinese factory activity dropping to 49.1 from 49.2 in January, as reported on 29 February by The Wall Street Journal. Values below 50 signify a contraction in activity. The production sub-index fell to 49.8 in February from 51.3 in January. The total new orders index remained stable at 49.0, while new export orders index fell to 46.3 in February from 47.2 in January. The manufacturing employment index fell to 47.5 from 47.6 in January.

The Services index rose to 51.0 in February from 50.1 in January, while the construction subindex fell to 53.5 from 53.9 in January.

A separate private survey of manufacturing activity focused on private and export-oriented companies rose to 50.9 in February from 50.8 in January.

Business Insider reported on 1 March that China is the only major economy dealing with deflation. China’s January CPI was down 0.8% YoY, the fourth consecutive monthly decline and the steepest drop in CPI in 15 years. By comparison, APAC CPI (all values January YoY) was 2.1%, Japan was 2.6%, Korea was 3.2%, the US 3.3%, the EU 3.5%, and the UK 4.2%.

China’s CPI has been under 1% YoY for 22 months, and its 2023 GDP deflator, a wide measure of domestic prices, was 0.5% YoY, signaling broad-based deflation.

Industrial overcapacity and the real estate recession are the drivers of Chinese deflation. Industrial overcapacity is the reason goods prices have dropped more than services.

Thailand

“THB ended modestly stronger this week”

“Thai gov't ramping up spending and public investment budget disbursements”?

“Japan seeks to recruit Thai skilled manufacturing and construction workers … does it have any to spare?”

The THB ended modestly stronger this week, from 35.88 per USD on 23 February 2024 to end at 35.80 on 1 March 2024.

The Thai government is ramping up spending and public investment, moving forward a parliamentary vote on the long-delayed budget bill by two weeks to facilitate disbursement of new investment funds starting in April, as reported on 28 February by Bloomberg. The plan to accelerate disbursement of funds follows the Bank of Thailand standing firm on holding its policy rate at 2.5%, and ongoing delays in the government’s proposed “Digital Wallet” cash handout plan.

Government spending was down 7.2% during the first four months of the 2024 fiscal year which began on 1 October, offsetting private consumption which expanded 7.4% during the same period.

The Thai government has announced that Japan is seeking Thai workers for its manufacturing and construction industries and has created a website to facilitate electronic applications. Eligibility requirements include males aged 18 to 30 years old with high school diploma or vocational certificate and not having a criminal record.

Energy

“Crude closed moderately higher this week”

“Henry Hub and EU Natural Gas closed moderately lower this week”

“US crude inventories up for 5th consecutive month”?

“Will Europe store excess natural gas in Ukraine?”

Brent Crude finished moderately higher this week, from $81.58 USD on 23 February 2024 to close at $83.46 USD on 1 March 2024.

Henry Hub finished moderately higher this week, from $1.58 USD per MMBTU on 23 February 2024 to close at $1.84 USD per MMBTU on 1 March 2024.

EU Natural Gas finished moderately higher this week, from €22.93 per MWh on 23 February 2024 to close at €25.81 per MWh, equivalent to $6.98 USD per MMBTU.

US crude inventories rose for a fifth consecutive month, as supply exceeded demand. Meanwhile, both WTI and Brent oil futures are in backwardation, meaning that near future prices are higher than later delivery, signaling a tightening of global supplies, as reported on 29 February by MarketWatch. The Biden Administration has bought oil for the Strategic Petroleum Reserve for 12 out of the past 14 weeks, increasing prices for active-month futures and driving the backwardation trend.

Reuters reported on 29 February that their survey of 40 economists and analysts forecast Brent crude average 2024 price to be $81.13, down from their $81.44 forecast in January. This is the fourth consecutive monthly drop in the survey price forecast. One analyst noted that “spare capacity has reached a multi-year high, which will keep overall market sentiment under pressure over the coming months.” The International Energy Agency estimates that OPEC total spare capacity is 5.1 billion bpd, of which Saudi Arabia has spare capacity 3.2 million bpd. Global oil demand during 2024 is expected to grow between 1 million and 1.5 million bpd.

OPEC’s oil production rose by 110,000 bpd in February, as reported on 1 March by Bloomberg. Iraq and the UAE continued to pump above the OPEC quota, exceeding their combined agreed limits by 400,000 bpd in February. Meanwhile, Libya resumed production of 120,000 bpd at its Sharara field which had been closed due to protests.

In Europe, a mild winter has left it with a record amount of natural gas in inventory for the end of February with its storage facilities exceeding 62% of capacity as reported on 1 March by Bloomberg. Europe is now considering storing gas in Ukraine to manage supplies and avoid a price crash. Ukraine has more natural gas storage capacity than any other country west of Russia. Its inventory of gas was nearly fully depleted following Russia’s invasion, but last year resumed storing gas for companies including Shell.

Logistics

“BDI closed moderately higher again this week”

“Houthis sink bulk carrier Rubymar”?

“K+N 2023 revenue down 40%, doesn’t expect significant improvements in 2024”

Baltic Dry?Index finished moderately higher again this week, from 1,866 on 23 February 2024 to close at 2,203 on 1 March 2024. Trading Economics has significantly raised its BDI forecast this week at 2,218 by the end of 1Q24 and 2,575 in 12 months. The BDI is down 5.2% since the beginning of 2024.

?The UK-owned, Belize-registered bulk carrier Rubymar has become the first vessel sank by the Houthis since they began attacking vessels in November, as reported on 3 March by Reuters. The ship was carrying 21,000 metric tons of fertilizer and left an 18-mile-long oil slick. The sunken vessel and its cargo represent a major environmental catastrophe for Yemen and the region, and the vessel also presents a subsurface impact risk for transiting vessels. Meanwhile, Houthi attacks on vessels continues.

Kuehne+Nagel (K+N), the largest ocean and air freight forwarder, saw revenue fall 35% during 4Q23 with full year revenue down 40% to $26.9 billion, as reported on 1 March by FreightWaves. Operating income was down 50% compared with 2022. K+N executives predicted “some stabilization in demand,” but don’t expect a significant improvement in 2024. The K+N CEO said, “Demand for global logistics services remains subdued and we don’t expect a material change to this situation. Sea freight and air freight did not see a broad-based peak season in 2023.”

Ocean freight forwarding represented the greatest negative impact on financial performance, with revenue in both 4Q23 and full year 2023 down 54% YoY. Container volume was down 1.1% YoY indicating that shipping rates were the primary driver of declining revenue. Profit for the segment was down 55% YoY in 4Q23 and down 50% for the full year.

The air logistics division saw a 27% drop in 4Q23 revenue, improved from a 41% full year drop. Air volumes in 2023 were down 11.2% while rates were down 32%.

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