The index, produced by S&P Global and GEP, tracks demand conditions, shortages, transportation costs, inventories and backlogs based on a monthly survey of 27,000 businesses.

Asia growth also cooled as factory demand in the region contracted to its weakest since December 2023. Underlying data revealed a decrease in purchasing activity by Chinese factories — the first time this has occurred in nine months.

Japan’s manufacturing sector was also a source of weakness.

Suppliers to North American companies reported slightly underutilised capacity during July, as was the case in June. Slowing purchasing activity was seen across all three countries within the region, with Canada reporting the steepest contraction.

Mexican factories, which have been a driver of growth in the region this year, reported lower input demand for the first time since October 2023.

“In July, purchasing activity by global manufacturers declined, indicating that economic growth is slowing, adding to the calls for the Federal Reserve to lower interest rates sooner rather than later,” explained Mike Jette, vice president, consulting, GEP.

“This is not alarming data. The world’s supply chains continue to operate efficiently, with no sign of stockpiling, shortages, or price pressures. But to head off any material slowdown in the second half of the year, manufacturers do need demand to increase,” he noted in a release by S&P Global.

Having recovered in the first half of the year, global factory purchasing activity fell by the greatest margin since the end of 2023 in July, indicating renewed weakness in the world economy.

Central to this decline was a fresh slowdown in Asia, driven by China and Japan. Europe’s manufacturing recession persisted, especially in Germany, where factory purchasing contracted sharply.

The inventory cycle has stabilized. While reports from global businesses of safety stockpiling due to price or supply concerns were below typical levels, the underlying indicator has generally trended in line with its long-term average so far this year.

Reports of material shortages fell slightly in July, down to their lowest level since January, signaling high stock levels at vendors of commodities and critical raw materials.

The supply of labour is not an inhibiting factor for global manufacturers, as reports of backlogs due to insufficient staffing capacity are at typical levels.

Although supply chain activity dipped in July, global transportation costs are at the highest in 21 months, largely driven by Asia.  

The index remained unchanged at minus 0.11 in North America, indicating slightly underutilised capacity across the region’s suppliers. Manufacturers in the United States, Mexico and Canada all reported a softening of demand in July.

The index fell sharply in Europe to a three-month low of minus 0.49, down from minus 0.13. Europe’s manufacturing sector recession is persisting, with major economies like Germany at the heart of the decline.

The index dropped to 0.11 in the United Kingdom from 0.49 in June, but still signaling capacity pressures at suppliers.

The index slipped from June’s 16-month high of 0.35 in Asia to 0.07, its lowest since April. Demand for inputs at Asian factories was at its weakest this year, principally because of a softening in China and Japan.

Fibre2Fashion News Desk (DS)