High inflation is becoming a memory, a post-pandemic fever dream that we’ve woken up from, but it lingers as a hazy memory as we lay up in bed heavy-headed and dazed. But in the real world, that heaviness is the drag of a much more expensive environment causing low demand and high interest rates which deter investment in the business world.
A toxic mix of low demand from eroded consumer incomes and low investment from elevated interest means production is waning across the world as elevated producer prices and low global consumer demand keep order numbers low, and high interest rates deter any type of production expansion, especially if businesses believe further rate cuts are on the horizon.
The IHS Markit Manufacturing PMI assesses manufacturing sector performance, providing insights into output, new orders, employment, and economic trends. From this data, it’s very easy to visibly see the unsurprisingly poor health of Germany’s manufacturing sectors; however, the latest data also shows alarming contractions (below 50) in China and the USA’s PMI figures.
Germany’s Manufacturing PMI has been below 50 and suggesting contraction for 27 consecutive months (since July 2022). The USA has been in contraction territory for 3 consecutive months (since July 2024), whilst China has been in contraction for 2 of the 3 previous months, managing a modestly expansive figure of 50.4 in August 2024.
What Does this mean for Logistics markets?
The effect of Manufacturing PMIs in negative territory means that the demand for the transportation of goods is falling on both sides of the supply chain. Looking upstream, this means that there is falling demand for the transportation of intermediate goods, and due to the relevance of just-in-time production and global supply chains, this has a very immediate effect on logistics markets, resulting in reduced pressure on rates in the road and sea markets in particular.
Looking downstream, we’ll see fewer outputs leaving factories heading towards consumers, reducing the demand for road, air, and sea freight but also lowering pressure on storage space to store finished goods.
Author: Nathaniel Donaldson
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