Has global manufacturing growth "rolled over" and is now heading for a slowdown?

Despite an improvement in Japan's Tankan survey of business sentiment, other surveys out yesterday and overnight show a distinct slowing in the pace of growth in global manufacturing, especially Asia and China.

Surveys in Europe and the US were mixed.

There does seem to be a definite slowing in demand and in growth of output, which is it continues for another month or two, will translate into a much larger slowdown later in the year.

It is already impacting commodity prices, with metals down sharply, iron ore prices as well, oil is weak.

Thursday's quarterly wrap up reported on the sharp falls in copper, lead, zinc, nickel and iron ore in the three months ended Wednesday.

It's the hard nosed investors in commodities (and some producers) signalling they see the slowing in China and elsewhere continuing and therefore cutting demand for copper, lead, zinc, tin, nickel, oil, iron ore and coal.

That's why there are so many stories about a double dip recession: not in China, perhaps in Europe and the US.

For Australia, it's a warning that the commodity price surge we are now seeing (see graph) can't go on for much longer without the slowdown in world prices having an impact.

The weak Aussie dollar eased the pain in June, but the PMI surveys are signaling a lower rate of growth, especially in China.

So far there's no real sign of a new recession, (there are plenty of possible signals), but the world economy could go into a 'growth slump' later this year and early 2011. (That's were there's growth as activity slides, slowly).

China's Purchasing Managers Index for June revealed a slowing (but still positive) rate of growth for a second consecutive month.

Taken with an easing in the growth rate of industrial production up to May, reports of lower demand and production of cars, steel, copper and aluminium there's a distinct feeling that the cooling long predicted in China, is actually happening.

The PMI showed a fall to 52.1 from 53.9 in May, (It's from the Government controlled Federation of Logistics and Purchasing).

This was well under the market forecast of a median 53.2 reading for the survey.

The manufacturing index, released by the logistics federation and the National Bureau of Statistics, covers more than 730 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics.

It suggests that China's second quarter economic growth will be lower than the first quarter rise of 11.9%. The figure (and other monthly and quarterly stats) ate due for release on July 15.

A second, private survey showed a similar fall for China.

The HSBC study (in association with market research firm Markit, the old CLSA survey) showed that its purchasing managers' index was 50.4 for the month, down from 52.7 in May.

In fact the HSBC survey showed a small drop in some areas, with a a decline in manufacturing output last month, ending 14 months of expansion.

New business orders taken by manufacturers fell for the first time in 15 months, a distinct turnaround from conditions in the first quarter, even though the fall was small.

In the US the last vestige of strength in the US economy--it's the manufacturing sector --appears to be slowing down too.

The Institute for Supply Management-Chicago Inc. said its business barometer fell to 59.1 in June, from 59.7 in May. It was 63.8 April.

The Milwaukee index was down too, from 65 in May to 59 in June, the lowest it has been since February.

And, the New York index slipped to 69.3 from a surge to 89.9 in May.

Canadian economist, Dave Rosenberg says the upshot is that "whether it's Philly, Dallas, Richmond, New York, Chicago, Kansas City or Milwaukee, it looks like manufacturing activity is rolling over, and in a broadly-based regional fashion."

In Japan, a slowing economy and level of activity (retail sales, production) and worries about Europe haven't dented optimism among Japan's biggest manufacturers with the best reading for two years reported in the latest Tankan index of sentiment from the Bank of Japan.

The survey, released at the start of every quarter, shows confidence at major Japanese manufacturers has improved for the fifth straight quarter.

The news didn't impress investors with the Nikkei down 2% to a new seven month low.

The Tankan showed that the main index for large manufacturers stood at 1, compared with minus 14 in April 1's survey.

The figure represents the percentage of companies saying business conditions are good minus those saying conditions are unfavorable.

The mood among big non-manufacturers also improved to minus 5 from minus 14 in December.

Large companies plan to increase capital spending by 4.4% in the year to next March; if achieved that will be the first rise in three years.

All the confidence is coming from the strong level of Japanese exports to Asia, especially China.

That's why there's a good chance that Japanese business confidence might have moved ahead of the level of confidence and performance of the Chinese economy.

Deflation is still strong in Japan, though easing, unemployment is rising, retail sales falling, output has lost the sharp growth profile from a few months ago and consumer income and spending remains weak.

In Australia manufacturing growth was still positive, but there's also a distinct slowing now apparent.

The monthly Australian Industry Group-PricewaterhouseCoopers performance of manufacturing index (PMI) fell 3.4 index points to 52.9 points in June; the second monthly fall in a row.

That's still positive, but like in China and other major economies, it's a signal that the expansion in manufacturing thanks to companies rebuilding stocks (which has dragged the world economy out of the deep recession of 2008-09) is running out of puff.

Australian Industry Group chief Executive, Heather Ridout, said "While the performance in recent months points to a positive June quarter both for the sector and the broader economy, there remains a considerable way to go before manufacturing returns to the levels of activity of mid-2008," Ms Ridout said in a statement.

Ms Ridout said the static nature of the new orders sub-index in June was of concern for the sector. "New orders are a pointer to future directions for output and employment," she said. "The slower growth in the production and employment sub-indices during June reinforces this concern.

The survey showed that activity rose in Victoria, Queensland and Western Australia, but fell in the other states.

The Australian sharemarket fell 1.5% yesterday, despite reports the mining tax brawl was closer to being settled.

In South Korea the HSBC survey for South Korea picked up a slowing trend.

The HSBC South Korea PMI fell to 53.3 for June from 54.6 in May, indicating the weakest pace of expansion since December 2009, but it was still positive for a 16th successive month. The result though was a six month low.

For Taiwan, HSBC's Manufacturing PMI fell for the third successive month to 53.8 in June, from 57.4 a month earlier.

But it remained positive for a fifteenth successive month.

In India manufacturing growth in India eased from a two-year peak last month.