Manufacturers Overcame Covid-19 Setbacks to End 2020 on High Note

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Manufacturers Overcame Covid-19 Setbacks to End 2020 on High Note

Europe’s 2020 factory revival was led by Germany.

Photo: filip singer/EPA/Shutterstock

Factories in the U.S., Asia and Europe boosted their output as 2020 drew to a close, aided by a rise in new orders and a revival in trade that has continued despite a sharp rise in coronavirus infections across many large economies.

The resilience of the global manufacturing sector contrasts with weakness in services businesses that rely on close physical proximity, and which have suffered as consumers try to lower their risk of infection and governments impose restrictions on their behavior.

Economists expect that divergence to be a feature of the global economy well into 2021, and until vaccines are distributed broadly enough to ensure widespread immunity against Covid-19.

Surveys of purchasing managers at factories across Asia and Europe released Monday recorded strong rises in activity during December, with Taiwan’s manufacturing sector recording its strongest month in almost a decade. The results of a similar survey of U.S. manufacturers also pointed to an increase in activity.

Despite a rise in infections in both the U.S. and Europe that have prompted governments to impose or extend restrictions, manufacturers continued to report a recovery from the sharp declines in output that accompanied the pandemic’s first wave and the lockdowns that accompanied it.

Data firm IHS Markit said its purchasing managers index for the U.S. manufacturing sector rose to 57.1 in December from 56.7 in November. That was the biggest improvement since September 2014, IHS Markit said. A reading above 50 points to an increase in activity from the previous month, while a reading below that level points to a decline.

IHS Markit’s purchasing managers index for the eurozone’s manufacturing sector also rose, to 55.2 in December from 53.8 in November, reaching its highest level since May 2018.

“The solid performance of manufacturing amid the tightening of Covid-19 restrictions in the closing months of 2020 represents a major contrast to the lockdowns earlier in the year, with factories acting as a crucial support to the economy as the service sector is hit by tough social distancing measures,” said Chris Williamson, IHS Markit’s chief business economist.

Meanwhile, in the U.S. the resurgence of coronavirus cases and coronavirus-related supply-chain disruptions posed challenges for some manufacturers, Mr. Williamson said. Consumer-goods producers, for example, reported a decrease in orders and production as Americans pulled back on spending, and factories overall said input prices were up sharply.

In recent years, purchasing managers indexes have become important indicators of where the global economy might be heading. But in the current slowdown, where small businesses were some of the hardest hit, PMI numbers may not be telling the full story. WSJ explains. Photo: Getty Images (Originally Published July 1, 2020)

Europe’s factory revival has been led by Germany, which is seeing strong demand for its exports. The country’s PMI rose to its highest level in almost three years during December.

Japan, another leading exporter of manufactured goods, saw its PMI rise to its highest level since April 2019, while South Korean factories reported the same strong growth in activity as in November.

By contrast, China’s Caixin PMI for the manufacturing sector fell slightly, partly reflecting a cooling of demand for the country’s exports. During the pandemic, protective gear and work-from-home tech products have served as pillars for China’s overseas trade, helping it gain global market share.

Despite the lengthening recovery, the surveys of purchasing managers indicate that many factories around the world continue to cut payrolls. That suggests that many remain cautious about their prospects in 2021, even as the deployment of vaccines gets under way.

Write to Paul Hannon at paul.hannon@wsj.com and Amara Omeokwe at amara.omeokwe@wsj.com

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