China’s economic slowdown is leading to a deterioration in the performance of the global manufacturing sector. Global manufacturing 2023 net profit fell 9% from July to September compared to the same period a year earlier, marking the fourth consecutive quarter of profit decline. Smartphones and semiconductors are waning, and demand for equipment investment is also underperforming. Rising interest rates supported financials, where spreads improved, and automobiles, where production returned to normal, and overall profits rose 3%. With the economic outlook for the U.S. and China in doubt, it is unclear whether the trend of profit growth will continue.
The results of more than 13,000 major listed companies in Japan, the U.S., Europe, and China (as of November 8, using market forecasts on an unpublished basis) were compiled using data from QUICK FactSet. They accounted for about 90% of the total companies by total market capitalization.
Net income for July through September totaled $1.0981 trillion. Nine of the 16 major industries, dominated by manufacturing industries such as chemicals (down 43%) and electronics (down 12%), posted profit declines. Machinery (down 10%) saw its first profit decline in five quarters. Profits in the non-manufacturing sector increased by 16%.
Changes in the Chinese economy appear to have led to a deterioration in manufacturing performance. Data from QUICK FactSet show that net profits of more than 240 non-Chinese firms with a ratio (imputed value) of the Chinese market to overall operating revenues of more than 30% decreased by 30%. The predicament is even more pronounced when compared to those with a China market share of more than 10% to less than 30% (1% decrease) and less than 10% (7% increase).
In China, known as the “world’s factory”, smartphone production and automation equipment, such as the performance of the downturn, a direct impact on a wide range of industries.
U.S. semiconductor major companies Texas Instruments and TSMC saw more than 20% decline in profits. TSMC’s chief executive officer (CEO) Wei Zhejia said that due to the overall macroeconomic weakness, China’s demand recovery is slow, customers have always been cautious in inventory management.
Profits at U.S. chemical major Dow Chemical fell 59%, and DuPont profits fell 13%. Factory automation (FA) equipment such as numerical control (NC) units, which are the brains of machine tools, also declined as equipment investment in China slowed. Japan’s Fanuc’s profit decreased by 20%. Orders, a leading indicator of performance, fell by 35% in China.
Despite expectations of economic stimulus in China, consumption in China is in the doldrums. Estee Lauder, a major U.S. cosmetics company, was affected by the downturn in the Chinese market, which is a major moneymaker, and saw its profits fall by more than 90%.
Against the background of the manufacturing sector’s sluggish performance, finance constituted support. Profit growth amount topped all industries. From the point of view of the net profit of large U.S. banks, Wells Fargo, which focuses on commercial banking, grew by 61%, and JPMorgan Chase grew by 35%.
Against the backdrop of rising interest rates in the United States since the summer, the spread, which is the difference between the interest rate earned on loans and the financing rate such as deposits, has widened.
The big U.S. tech companies are recovering. Six companies, including Apple and Microsoft, have seen their profits increase by 41%. In addition to the push for cost compression such as layoffs, there has been a recovery in online advertising and other areas previously affected by the economic slowdown. The automotive industry, led by Toyota, is also performing strongly, with profits up 55%.
Regarding the outlook for October to December 2023, statistics from QUICK FactSet’s Market Forecast found that profits in the manufacturing sector will grow by 7%, and overall profits will grow by 21%.
Fears of a slowdown in the U.S. economy are entrenched due to the prolonged monetary tightening. High interest rates will lead to bad loans and become a financial headwind. Wells Fargo CEO Charles Scharf says he is continuing to shrink credit lines as there is a move to increase the cost of handling non-performing claims.
The once-firm U.S. economy is showing signs of slowing. The Institute for Supply Management (ISM) released the October non-manufacturing index hit the lowest level in five months, and personal consumption showed signs of contraction.
If the U.S. economy, which has been supporting corporate performance, collapses, it is likely to have an impact on a wide range of industries.