Global services PMIs for August: Mixed but weakening trend

By Prieur du Plessis, on September 15th, 2010 posted in: Economy

Country	Non-manufacturing/ Services PMI
Country	August 2010	July 2010	Trend
*United States*	*51.5*	*54.3*	*Sharply lower, expanding*
*Euro zone*	*55.9*	*55.8*	*Elevated, expanding*
Germany	57.2	56.5	Robust
France	60.4	61.6	Robust
Italy	51.4	49.6	Expanding again
Spain	49.2	51.3	Contracting
Ireland	52.9	55.7	Softer, expanding
UK	*51.3*	*53.1*	*Softer, expanding*
*Japan*	*48.7*	*46.3*	*Contraction moderating*
*Emerging Economies*
Brazil	52.6	51.3	Higher, expanding
China*	60.1*	60.1*	Robust
India	59.3	61.7	Robust, slowing marginally
Russia	47.0	54.2	From strong expansion to contraction
*JP Morgan Global Services*	*54.1*	*55.1*	*Softer, expanding*

Sources: Markit; CFLP*; ISM; Plexus Asset Management.

US economy: GDP growth slowing but not falling back into recession, yet

My GDP-weighted ISM PMI for the US leads US real GDP growth by a quarter. At this stage it indicates that the US economy in the third quarter is maintaining last quarter’s 3% on a year-ago basis but that the growth in the fourth quarter will slow to approximately 2%. That translates to 1.7% quarter on quarter annualised in the third quarter and 1% in the fourth quarter. With my chartist’s hat on it seems likely that the GDP-weighted PMI may head for the 50-level in the fourth quarter. If that is the case I expect year-on-year GDP growth to slow to 1% in the first quarter next year, which means the US economy will contract on a quarter-on-quarter basis for the first time since the second quarter last year.

Sources: ISM; FRED; Plexus Asset Management.

Eurozone: Growth cycle to peak in the current quarter?

My GDP-weighted PMI for the euro zone gives me insight to where the euro zone economy is heading. It is currently suggesting that the economy is growing at a rate in excess of 2% on a year-ago basis compared to 1.9% in the second quarter. However, year-on-year growth in the GDP is likely to peak in the current quarter and moderate in the fourth quarter.

Sources: Markit (various internet sources); I-Net; Plexus Asset Management.

China’s non-manufacturing PMI: Elevated, but weakening compared to this time last year

The CFLP non-manufacturing PMI for August followed the seasonal trend as I expected. What is evident, though, is that the expansion is weakening compared to last year. However, there is no indication of a train smash ahead as happened in 2008.

Sources: CFLP; Plexus Asset Management.

My reading is that the CFLP non-manufacturing PMI for September is likely to drop to approximately 57 from an unchanged 60.1 in August. That may scare the markets but seasonal strength in the manufacturing sector is likely to save the day. This is underscored by the strength of the Baltic Dry Index. However, the CFLP manufacturing PMI in 2010 has been consistently weaker than the averages of 2005 to 2007.

Sources: CFLP; Plexus Asset Management; I-Net.

If I look at my GDP-weighted CFLP PMI (manufacturing and non-manufacturing combined) my conclusion is that although there is no imminent collapse apparent yet like in 2008, China’s economic growth is definitely weakening.