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Declining output is relevant for the North American promotional products industry because the majority of products sold here are produced in China.

The world’s factory is slowing down.

China’s manufacturing sector, which accounts for about 30% of global manufacturing output, contracted further in April amid strict societal shutdowns aimed at combatting the spread of COVID-19.

The sector’s activity was at the lowest levels seen since the beginning of the pandemic in 2020 when Beijing’s “zero-tolerance” policies for COVID led to similar lockdowns that crippled output. The latest contraction is negatively impacting global supply chains that include production and logistics networks for the U.S/Canadian promotional products industry.

The majority of promo products sold in North America are produced in China-based factories. Even when items are manufactured outside China, it can often be the case that producers rely on components/materials from that nation.

The result, industry executives have told ASI Media, is that with the slowdown in China’s manufacturing sector – along with related logistical issues like inability to efficiently transport products/materials due to trucking/travel problems tied to COVID – promo suppliers are expecting delays in inventory replenishment. That could exacerbate stock gaps, making less product available for the domestic market to sell. The longer the shutdowns and related factory issues go on, the greater potential for more severe impacts, executives say.

Intensifying COVID lockdowns in China are causing supply chain imbroglios for North American #promotionalproducts suppliers & are poised to delay replenishment of inventory levels at the domestic industry firms. https://t.co/bOL3KwrXTO @asicentral @ASI_MBell

“Our industry will be negatively impacted by these shutdowns – 100%,” says Jeffrey Nanus, CEO of Norwood, NJ-based hard goods supplier AAA Innovations (asi/30023).

According to figures released Saturday, April 30, by China’s National Bureau of Statistics, the nation’s official manufacturing purchasing managers index dropped from 49.5 in March to 47.4 in April – the lowest level since February of 2020. Readings below 50 indicate contraction.

Particularly concerning was the fact that a subindex on factory production fell off a cliff, dropping from 48.8 in March to 44.4 in April. The decline was a direct result of factories reducing or stopping production due to the spread of the omicron variant of COVID-19 and related societal lockdowns. Dozens of cities, including the pivotal export hub of Shanghai, are experiencing various degrees of restrictions.

Notably, another subindex that tracks exports – something of particular interest to promo firms that import from China – eroded further, signaling significant contraction. The index measured 41.6 in April, down from 47.2 in March.

“Exports – already predicted to slow after two years of a bigger-than-expected boom – are showing particular vulnerability to the disarray in domestic production and transportation capacity,” The Wall Street Journal reported.

Proactive promo suppliers say they have factored disruption into their supply line modeling and have sought to bring more product stateside further in advance than what would’ve been the norm prior to COVID-19. Relatedly, they’re also carrying more inventory on hand than they would have previously.

Still, given the ongoing disruption in China, it’s possible for inventory shortages to intensify, so both suppliers and distributors will need to communicate clearly and quickly about what is available, and at what levels, and what isn’t. Suppliers, executives say, should be prepared to offer alternative solutions when first-choice items aren’t at hand.

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