Morning Market Brief: Friday, June 2, 2023

Struggling global manufacturing sector

A key indicator of global economic health has been challenged this year. For much of 2023, manufacturing sector activity across many major economies continued to contract, hindered by weak demand and falling output. Data released yesterday shows it’s the same story for May.

• In Canada, manufacturing sector activity contracted for the second time in the last three months. The S&P Global Manufacturing Purchasing Managers Index (PMI) revealed a drop in new orders and output dragged Canada’s manufacturing sector down.
• In May, the US manufacturing sector posted its sharpest contraction since February 2023. The manufacturing sector is such a key component of the US economy that soft results reverberate worldwide.
• Europe’s manufacturing sector continues to struggle in 2023. This was particularly evident in Germany, Europe’s largest economy. Germany depends heavily on its manufacturing capabilities but shrank over the last 11 months. The decline pushed the German economy into a technical recession in the first quarter.
• Conversely, the Caixin China Manufacturing PMI revealed China’s manufacturing sector expanded in May, albeit at an ultra-slow pace. New orders and output grew over the month.

Manufacturing is a key indicator to watch as you assess global economic health. Recently, however, weak manufacturing activity has weighed on global economic growth, adding to investor uncertainty. As this mixed data was released yesterday, the price of oil, one of the key inputs in manufacturing, swung between gains and losses. Exposure to oil and other commodities is important for your portfolio, but keep in mind commodity prices may be volatile, given their sensitivity to changes in economic conditions.

Please contact your advisor to discuss how weak manufacturing data may impact the global economy and your portfolio.