Global PMI Scorecard: faster rate of expansion

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Manufacturing PMIs

I remarked in a post on Friday that the November manufacturing PMIs came in much stronger than the market and I expected. Only Spain, Italy and Australia reported weaker growth, with the U.S. marginally lower. The manufacturing sectors in most countries except Australia, Japan and Greece continue to expand. Brazil is on the brink of expanding again, whereas Spain finds itself on the edge of contraction.

Country

Manufacturing PMI

Trend

Nov-10Oct-10
U.S.*****56.656.9Little slower, expanding
Eurozone*55.354.6Stronger, expanding
Germany*58.156.6Robust
France*57.955.2Robust
Netherlands*56.555.4Stronger, expanding
Greece*43.943.6Contraction moderating
Italy*52.053.0Slower, expanding
Spain*50.051.2Slower, contraction looming
Ireland*51.250.9Higher, expanding
U.K.*58.054.9Robust
Japan*47.347.2Little change, contracting
Australia*47.6 49.4Contraction deepening
Emerging Economies
Brazil*49.949.5Contraction moderating
China**55.254.7Stronger, expanding
Czech*57.357.2Robust
Poland*55.955.6Stronger, expanding
Turkey*56.454.3Stronger, expanding
India*58.457.2Robust
Russia*51.151.8Slower, expanding slowly
RSA***52.949.8Stronger, expanding again
Taiwan*51.748.6Stronger, expanding again
JP Morgan Global****54.053.7Stronger, expanding

Sources: Markit*; Li & Fung**; Kagiso***; Plexus Asset Management****; ISM*****.

Non-manufacturing/services PMIs

The non-manufacturing/services PMIs released for November indicated that the global expansion in the global services or non-manufacturing sector gained traction, with the JP Morgan Global Services PMI inching up to 54.8 from 54.6 in October. The services sector in the Eurozone was particularly strong, with Germany leading from the front as the PMI in the latter ratcheted up to a broad-based robust 59.2 from 56.0 in October. Italy also saw an improvement, with the PMI improving to 54.4 from a near neutral 50.9 in October as a result of an increase in foreign demand. Spain and Ireland continue to lag the rest of the Eurozone due to the increased uncertainty regarding the outcome of the present crisis and austerity measures. Growth in the non-manufacturing sector in the U.S. accelerated in November, with the ISM non-manufacturing PMI improving to 55.0 from 54.3 in October.

The services sector in Australia again contracted in November as the PMI plummeted 4.5 points to 46.2. India was the bright spark in Asia as a strong rise in new business orders pushed the services PMI to 61.3 from an already robust 58.4 in October. I already covered the slump in China’s CFLP non-manufacturing PMI in a previous blog where I attributed the drop from 60.5 to 53.2 to seasonal factors. The business environment in Japan’s services sectors improved to a near neutral 49.5 from contracting in October as a result of growth in new business.

Country

Non-manufacturing/

Services PMI

November 2010October 2010Trend
United States 55.054.3Stronger, expanding
Eurozone55.453.3Stronger, expanding
Germany59.256.0Robust
France55.054.8Stronger, expanding
Italy54.451.0Stronger, expanding
Spain48.346.5Contraction moderating
Ireland50.850.9Unchanged, expanding slowly
U.K.53.053.2Marginally softer, expanding
Australia 46.250.7Plummeted into contraction
Japan 49.547.2Contraction moderating
Emerging Economies
Brazil52.151.8Higher, expanding
China*53.260.5Growth slowed significantly
India61.358.4Robust
Russia54.154.7Moderately slower, expanding
JP Morgan Global Services54.854.6Slightly higher, expanding

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

GDP-weighted/composite PMIs

On a GDP-weighted/composite basis where the manufacturing and non-manufacturing/services are both taken into account, the growth in global economic activity continues to expand but at a marginally slower rate, taking the JP Morgan Global Composite PMI Index to 54.6 from 54.8 in October.

GDP-weighted/ Composite PMITrend
CountryNov-10Oct-10
U.S.55.454.9Stronger, expanding
Eurozone55.453.7Stronger, expanding
Germany59.056.0Robust
U.K.54.453.7Stronger, expanding
Japan 48.747.2Contraction moderating
Emerging Economies
Brazil51.550.8Moderately stronger, expanding
China*54.058.2Slowing, expanding
JPMorgan Global54.654.8Marginally slower, expanding

Sources: Markit; CFLP*; Li & Fung*; ISM; Plexus Asset Management.

Sources: Markit; CFLP*; Li & Fung*; ISM; Plexus Asset Management.

Conclusion

U.S. economy: GDP growth holding up

My GDP-weighted ISM PMI for the U.S. leads U.S. real GDP growth by a quarter. At this stage it indicates that the U.S. economy in the fourth quarter is running at a rate of approximately 2.5% on a year-ago basis but that the growth in the first quarter of next year could improve.

Sources: ISM; FRED; Plexus Asset Management.

Eurozone: GDP growth cycle to peak in the current quarter?

The GDP-weighted PMI for the Eurozone gives me insight into where the Eurozone economy is heading. It is currently suggesting that the economy is maintaining growth of approximately 2% on a year-ago basis. Year-on-year growth in the GDP is likely to moderate in the first quarter of next year.

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

China’s GDP-weighted PMI: down as expected, but expect a major rebound in December

My calculated GDP-weighted PMI for China was in line with my expectations based on the apparent seasonal trend. I therefore expect a significant seasonal rebound in December. What is evident, though, is that the expansion is on par with that of last year and that there is no indication yet of a train smash ahead as happened in 2008.

Sources: CFLP; Plexus Asset Management.

From a forecasting point of view the CFLP manufacturing PMI gives a better picture of underlying GDP growth due to lower seasonality.

Sources: Dismal Scientist; Li & Fung; Plexus Asset Management.

Japan: a mixed picture

A significant diversion is shaping up between Japan’s GDP growth and the manufacturing PMI. If the trend in the manufacturing PMI is likely to shape the future, then I am afraid Japan’s economy may soon find itself in a double-dip recession.

Sources: Dismal Scientist; Markit; Plexus Asset Management.

U.K. economy: the ship has steadied for now

The U.K.’s year-on-year GDP growth has finally caught up with my calculated GDP-weighted PMI (manufacturing and services combined). The composite PMI currently indicates that growth in the fourth quarter has slowed somewhat from the third quarter’s 2.8% but should accelerate in the first quarter of next year.

Sources: Dismal Scientist; Markit; Plexus Asset Management.

The manufacturing and non-manufacturing/services PMI numbers for November were better than I expected and are likely to hold up in December.

In the longer run I remain very skeptical regarding the outlook for the global economy. There are just too many black swans out there! Leading indicators in China have fallen in a heap. Will the second round of quantitative easing in the U.S. be able to turn the house market? What about the potential contagion of the debt crisis in the Eurozone?

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