Back in Business?

Recent headlines are focusing on stunningly bad GDP numbers. But the manufacturing sector across the globe has quietly entered “expansion” mode.

If anyone is looking for bad economic news these days, it’s not too hard to find. In the United States and Europe, gross domestic product numbers this past quarter were stunningly bad. The United Kingdom's economy shrank 20.4% in the second quarter putting it officially in recession after a weak first first quarter.

But that was last quarter. According to some little-noticed results, the all-too-critical manufacturing sector appears to have turned the corner. During July the factory sector grew in the US and in all three of Europe’s largest economies. Indeed, under one well-followed metric, the US, the UK, Germany, and France show that all four countries are now in “expansion” territory—after months of being in contraction from the pandemic earlier this year. “I am quite optimistic that this is for real,” says Yannick Binvel, Korn Ferry’s president of global industrial markets.

Without a doubt, the tables can turn. But the figures on the so-called purchasing managers index (PMI), which measures the health of the manufacturing sector, suggest a bounce back with some rare speed. The US reading came at 50.9—up 14.8 points from its low in April, while the UK’s jumped 20.7 points to 53.3. Any reading over 50—which Germany and France also surpassed—is considered an expansion.

Manufacturing is often considered a key indicator of where a country’s economy is heading. In this case, experts say the gradual lifting of lockdowns is likely stirring that engine ahead of other sectors.

Manufacturing production has also been given a boost by jumps in several different technology businesses, which have benefited from the work-from-home trend, says Peter Cave-Gibbs, a Korn Ferry senior client partner for the global technology industry. “The tech industry has had some real winners,” he says. “There is a positive sense among leaders that we need to take advantage of this situation.” The result is that the business world is moving on with a new way of working and equipping its employees.

But increasing production can be easier said than done. The major restraint in ramping up production for many companies will be access to the raw materials they need to make their products, Binvel says. “It will come down to how much effort executives have put into reforming their supply chain,” he says. The pandemic has meant many materials that were produced thousands of miles away from a factory are no longer easily or quickly available.

Smart leaders have spent time during the depths of the economic crisis changing where they’ll source their supplies, Binvel says. Relying more on suppliers in the immediate geographic area helps avoid supply interruptions that can, in turn, disrupt production. Going local is now seen as more reliable. “Their supply chains are changing from global to regional,” he says.