Key Focus This Week: US ISM PMI & Nonfarm Payrolls

Manufacturing PMI Recap: US, China, EU, Japan & Korea (Latest)

In February, the U.S. manufacturing sector remained in expansion for the second consecutive month, but new order demand weakened further due to potential tariff policies. Meanwhile, the eurozone saw its contraction ease as political stability improved in Germany and France, with business sentiment reaching its highest level since the onset of the Russia-Ukraine war. In Asia, China's PMI rebounded to expansion following the end of the Lunar New Year holiday, recovering from the brief contraction last month, though domestic demand growth remained sluggish. In Japan, manufacturing contracted for the eighth consecutive month, with business confidence declining to its lowest level since mid-2020 due to the slow domestic recovery and concerns over U.S. tariffs. Meanwhile, South Korea’s PMI remained stable, with weak domestic demand counterbalanced by improving external demand, though business confidence remained subdued amid domestic economic uncertainty. United States PMI: Expansion for Two Consecutive Months, But Tariff Concerns Emerge The U.S. manufacturing PMI stood at 50.3 (previous: 50.9) in February, marking its second consecutive month in expansion. Among the sub-indices, new orders ended their five-month uptrend, plunging into contraction territory at 48.6 (previous: 55.1), recording the sharpest decline since April 2020. Meanwhile, the production index declined slightly but remained in expansion at 50.7 (previous: 52.5). The inventories index further fell to 45.9 (previous: 48.4), while supplier delivery times lengthened to 54.5 (previous: 50.9). At the same time, the employment index retreated into contraction at 47.6 (previous: 50.3). Additionally, the prices index surged to 62.4 (previous: 54.9), marking the largest increase since January 2024 and the highest level since June 2022. Overall, concerns over potential tariff impacts have led businesses to adopt a more cautious stance, resulting in a slowdown in both new orders and hiring. Meanwhile, companies have been stockpiling, negotiating cost absorption with clients, and raising material prices to mitigate potential tariff costs, leading to higher inventory levels and longer delivery times. Read more at Datatrack Euro Area PMI: Contraction Eases, Business Sentiment at Highest Since Russia-Ukraine War The Eurozone's Markit PMI came in at 46.6 (prior: 45.1) in February, remaining in contraction but hitting a two-year high. New orders saw the smallest decline since May 2022, production remained stable, and backlogs continued to decline at a slower pace, indicating a mild recovery in demand. However, employment remained weak, with businesses accelerating layoffs at the fastest pace in four and a half years. Input prices continued to rise, reaching a six-month high, yet due to weak demand, firms opted to absorb costs, resulting in slightly lower output prices compared to the previous month. At the national level, Germany and France remained the most severely affected but showed signs of improvement as domestic political uncertainties eased: Germany: The February Markit PMI rose to 46.5 (previous: 45.0), the highest since January 2023. While export orders continued to decline, the pace of contraction eased, resulting in the smallest drop in new orders since early 2022. Production contraction also slowed, reaching its lowest decline since May 2023.However, employment contraction accelerated, marking the largest drop in three months. Following Germany’s cabinet reshuffle on February 23, businesses remained cautious about tariffs and political tensions but remained optimistic about the future, with production expectations staying near a three-year high. France: The February Markit PMI improved to 45.8 (previous: 45.0), a nine-month high. New orders continued to decline due to weak domestic and external demand, but the contraction was the smallest in eight months. Production continued to decline but at a slower pace, and inventories decreased amid weak demand and reduced purchasing.Employment remained in contraction, but the rate of job cuts was the slowest in three months. Backlogs remained stable as new orders and employment declines eased. Notably, business confidence turned optimistic for the first time in seven months, although concerns persisted in the automotive and construction sectors. Italy: The February Markit PMI rose to 47.4 (previous: 46.3), a five-month high. Domestic demand remained weak, causing new orders to continue declining, in line with the 12-month average. Production also slowed, but the pace of decline has moderated over the past three months.Employment fell further, with layoffs accelerating to a three-month high, while backlogs continued to decline. However, businesses were optimistic that Germany’s political situation would stabilize post-election, and anticipated further rate cuts from the ECB, contributing to a relatively positive sentiment. Read more at Datatrack   China PMI: Three-Month Expansion Ends, Urgency for Policy Stimulus Increases China manufacturing PMI stood at 50.2 (previous: 49.1) in February, returning to expansion after a brief contraction last month. Production (52.5, previous: 49.8) and new orders (51.1, previous: 49.2) both returned to expansion, while inventories declined further to 47.0 (previous: 47.7) and employment slightly improved to 48.6 (previous: 48.1). However, exports rose to 48.6 (previous: 46.4), and the new orders minus customer inventory indicator (2.8, previous: 2.7) did not improve significantly. As such, the PMI recovery likely reflects a post-holiday rebound as businesses resumed operations and cleared accumulated orders from January, rather than a significant improvement in domestic demand. Read more at Datatrack Japan PMI: Seventh Consecutive Month of Contraction, Business Sentiment at a Two-Year Low Japan manufacturing PMI stood at 49.0 (previous: 48.7) in February, marking its eighth consecutive month of contraction. New orders and production continued to decline, though at a slower pace. Surveyed firms reported further declines in finished goods inventories, with the largest drop in a year, as weak demand persisted. Hiring stagnated due to rising labor costs and weak demand, while backlogs continued to decrease. Input costs rose further compared to the previous month and remained above the long-term average, with firms raising output prices despite sluggish demand. Business confidence for the next 12 months remained positive but fell to its lowest level since June 2020, reflecting concerns over the slow domestic recovery and U.S. protectionist policies. Read more at Datatrack South Korea PMI: External Demand Recovery Drives Expansion, Domestic Recovery Uncertain South Korea manufacturing PMI stood at 49.9 (previous: 50.3) in February. New orders rose for the second month, driven by new product launches and growing overseas demand. Export orders expanded for the fourth consecutive month, though growth was limited by weakening demand in the U.S. and Europe, offsetting gains in Asian markets. However, weak domestic demand led to a sharp drop in business confidence, causing employment to contract at the fastest pace since July 2022. Rising raw material costs further intensified input inflation, prompting businesses to raise output prices, marking the sharpest price increase in 15 months. Taiwan PMI: Returns to Expansion on Strong AI Chip Demand, Outlook Remains Optimistic Taiwan’s manufacturing PMI rebounded to 54.0 (previous: 48.7) in February , returning to expansion. New orders recovered to 54.4 (previous: 49.7) after a brief contraction last month, while the production index surged to 59.9 (previous: 45.0), reflecting multiple factors: China's “replacement and upgrade” policy driving a recovery in consumer electronics, U.S. firms accelerating production before tariff implementation, and robust demand for CoWoS advanced packaging and high-end AI chips. At the same time, the electronics and optics industry led to an increase in inventories, reaching 52.7 (previous: 46.5), marking the first expansion since September 2022. The new orders minus customer inventory index also climbed to 10.1 (previous: 4.4), while the employment index rose further to 52.0 (previous: 50.8), indicating that demand remained strong even after the Lunar New Year holiday. Notably, despite the Trump administration’s series of tariff announcements, Taiwan’s six-month outlook index continued to rise to 54.3 (previous: 51.7), suggesting that most industries remain optimistic. However, the transportation sector saw a significant decline to 37.5 (previous: 50.0), reflecting the impact of tariffs on the automotive industry as well as weaker-than-expected sales, which weighed on business confidence. Global Manufacturing PMI Summary While the U.S. and China manufacturing sectors expanded in February, the U.S. saw new orders and hiring slow due to tariff concerns, and China's recovery was largely driven by post-holiday factors rather than strong domestic demand. The eurozone remained in contraction, but stabilizing political conditions in Germany and France helped ease the downturn. Meanwhile, Japan and South Korea faced persistent domestic demand weakness, rising input costs, and deteriorating business confidence. With the Trump administration implementing tariffs on China, Canada, and Mexico, and potentially expanding measures to other industries and countries, global manufacturing will likely remain under the cloud of trade policy uncertainty in the near future.