Global non-manufacturing/services PMI Scorecard: robust growth all round!

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The non-manufacturing/services PMIs released for February 2011 continued to build on the already robust levels and are reminiscent of the robust manufacturing PMIs. The JP Morgan Global Services PMI rose to 59.3 from 58.2 in January.

The non-manufacturing sector in the U.S. continues to forge ahead with the ISM non-manufacturing PMI coming in at a very robust 59.7 compared to 59.4 in January. In the Eurozone Germany’s robust services sector moderated somewhat but the services sector in France continues to accelerate rapidly, with the PMI jumping from 59.7 compared to 57.8 in January. Elsewhere in the Eurozone Italy and Ireland expanded rapidly, while in Spain the PMI improved to an expansionary 50.8 compared to a contraction in January. The robust expansion in France and the improved conditions elsewhere in the Eurozone took the PMI for the Eurozone to 56.8 in February from 55.9 in January despite the moderation in Germany.

The significant rebound in the U.K. services sector in January was unable to follow through in February as the PMI moderated to 52.6 from 54.5 in January. Similarly, Japan’s services sector could not hold onto the gains of the previous two months, dropping back to 49.8 from 50.4 in January. The contraction in Australia’s services sector PMI has moderated significantly to 48.7 in February after sagging to 45.5 in January.

In the emerging economies the robust expansion in India’s services sector continues to accelerate. China’s non-manufacturing PMI tumbled to 44.1 from 56.4 and although lower than I expected (47) it was in line with the seasonal pattern.

Sources: CFLP; Plexus Asset Management.

The rate of expansion in Russia continues to moderate but the expansion in Brazil’s services sector has steadied.

Non-manufacturing/ Services PMI

TREND

CountryFeb-11Jan-11
U.S.59.759.4Expansion accelerating, robust
Eurozone56.855.9Expansion accelerating, robust
Germany58.660.3Robust pace moderated
France59.757.8Expansion accelerating, robust
Italy53.149.9Expanding again
Spain50.849.3Expanding again
Ireland55.153.9Expansion accelerating
U.K.52.654.5Expansion moderated
Japan 49.850.4Contracting again
Australia 48.745.5Contraction moderating
Emerging Economies
Brazil52.752.7Expanding
China*44.156.4Seasonal contraction
India61.058.1Expansion accelerating, robust
Russia53.454.2Expansion moderated
JP Morgan Global Services 59.358.2Expansion accelerated, robust

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 continued to accelerate in February, taking the JP Morgan Global Composite PMI Index to a robust 59.4 from 58.3 in January and 57.1 in December.

GDP-weighted/ Composite PMITrend
CountryFeb-11Jan-11
U.S.***60.159.7Expansion accelerating, robust
Eurozone****57.456.3Expansion accelerating, robust
Germany*60.961.3Robust
France*59.057.6Expansion accelerating, robust
U.K.****55.156.6Expansion moderated, strong
Japan*51.050.9Expansion continues
Emerging Economies
China**47.355.0Seasonal contraction
India*61.059.6Expansion accelerated, robust
Russia*55.254.6Expansion accelerated
UAE*54.354.2Expansion accelerated somewhat
JP Morgan Global Composite*59.458.3Expansion accelerated, robust

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

Summary
U.S. economy: GDP growth accelerating
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 first quarter of this year is in excess of 3% on a year-ago basis and may even touch 3.5%. If the current robust manufacturing and non-manufacturing PMIs hold up through end June, the year-on-year GDP growth could reach 4% and beyond in the 2nd quarter!

Sources: ISM; FRED; Plexus Asset Management.

Eurozone: GDP growth to gain momentum in Q2
Although the official year-on-year GDP growth number for the 4th quarter came in at 2.0%, I am of the opinion the number will be revised upwards as my GDP-weighted PMI for the Eurozone indicates that the economy grew by approximately 2.5% on a year-ago basis. The PMIs during the fourth quarter of last year indicates that year-on-year growth in the GDP is likely to be maintained at 2.5% in the first quarter of this year but may accelerate to 3% in the second quarter.

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

China’s GDP-weighted PMI: tanked as expected in February but …
My calculated GDP-weighted PMI for China tanked in February as I expected based on the apparent seasonal trend influenced by the Chinese Golden Week that started on 2 February. A significant jump in both manufacturing and non-manufacturing PMIs is likely in March but the somewhat weaker trends compared to the past indicate that the stricter monetary policies pursued over the past 12 months have started to bite. I therefore doubt whether my GDP-weighted PMI will reach heights similar to those of 2008 and 2010.

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. China’s year-on-year GDP growth of 9.8% in the last quarter of last year was in line with my estimate of 10% based on the manufacturing PMI’s trend in the last quarter of last year. It is evident to me that China’s year-on-year GDP growth in the first quarter is likely to be slightly lower than the 4th quarter’s 9.8%.

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

Japan: edging ahead!
The uptick in the manufacturing PMI and the second consecutive month of expansion in the services PMI may indicate that the Japanese economy may stave off a double-dip recession in the short term.

Sources: Dismal Scientist; Markit; Plexus Asset Management.

UK economy: Continuing to gaining traction…!
From my reading of the GDP-weighted PMI the U.K. has grown by approximately 1.8% in the first quarter on a year-on-year basis compared to 1.6% in the fourth quarter of last year. It is evident that growth in the second quarter will accelerate to approximately 2%.

Sources: Markit; Dismal Scientist; Plexus Asset Management.

Conclusion
Both global manufacturing and non-manufacturing/services PMI numbers continue to surprise me on the upside. I am therefore of the opinion that as things stand, a sustained improvement in global manufacturing and non-manufacturing/services PMIs in the next few months will again see some hawks raising their heads in the FOMC, BoE and ECB as headline inflation is also turning for the worse. I would certainly start to bet on the Fed raising the Fed funds rate in the third quarter of this year.

That said, my expectation hinges on a neutral scenario – that is the absence of black swans or, put differently, no major global crisis. However, the global pond is becoming increasingly infested by black swans, i.e. the worsening geo-political situation in the Middle East and North Africa, the stricter monetary policies of the PBoC, and the potential contagion of the debt crisis in the Eurozone. Any severe crisis is likely to adversely affect consumer sentiment and consequently demand in developed economies, and may therefore delay monetary tightening actions by the respective central banks.

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1 comment to Global non-manufacturing/services PMI Scorecard: robust growth all round!

  • Paul Sandison

    Great post, Prieur. I agree there is a risk of geo-political Black Swans. Also therefore:

    The time is overdue to scrap the One World Order. Remember too George Orwell’s dictum ‘Two legs good, four legs bad’?

    A good litmus indicator of world growth is the economy of Sweden which grew at one of the fastest paces in the developed world at an annualised 7.3% in Q4 2010.

    Sweden is highly dependent on exports to the rest of the world, which means that when the world economy picks up the Swedish economy picks up, but when the world goes into recession the Swedish economy goes down like a lead balloon. In this respect it is far more vulnerable than a country like the US.

    Perhaps that is why Sweden has learned that an efficient and effective economy cannot be run like the Wild West without a sheriff. Sweden has automatic stabilisers which include massive infrastructure projects guaranteed by the government which kick in at the start of a recession.

    Of course the US would never entertain such a thing as automatic stabilisers because of its collective neurotic phobia of the communist spook.
    To even suggest restarting the WPA as ramped up by FDR in the 1930s is regarded as an insult – it hurts people’s feelings because it suggests the US has not progressed beyond such humble beginnings, and also the WPA smacks of, dare I say it?.. central government interference in the economy. ‘We have moved on from that, we do things better nowadays, the WPA wasn’t efficient anyway’, I hear. OK, what is the alternative, I ask. ‘We don’t need one, the economy is recovering’ is the reply.

    ‘Four legs good, two legs bad’

    Likewise Sweden had its own banking crisis at the
    beginning of the 1990s. The government took over 4 of the 5 large nationwide banks lock, stock and barrel, fired the shareholders, cleaned out the toxic assets, recapitalised and renationalised them all in 7 months. Normal practice in a capitalist country. But I am told that in the US this is regarded as a terrible communist central government intervention, and proof of Sweden’s stalinist socialism. Anyhow, the Swedish banks are now stable and the national debt is only 0.5% of GDP which means the banks can lend, the people are not in debt and the economy is booming.

    In retrospect though, isn’t that a slightly better result than injecting more money into the bloating rotten large US banks with their rotten executives achieving rotten results and getting gigantic bonuses for rotten performance? Especially when they still have toxic assets on their books, are hamstrung in their ability to lend, and the taxpayers will yet have to foot the government bill which is now exceeding $14 trillion? It is of course debatable which is worse, and for whom – continued QE for an extended period of time, or the inevitable inflation which will force a raising of interest rates which then choke off the economy?

    “In an hour-long interview with journalists at the Center for Public Integrity, Neil Barofsky, the inspector general of the controversial TARP program, said that the financial market believes some U.S. banks remain too big to fail despite the Dodd-Frank financial reform law.

    “The market does not believe the government when it says it will not bail out banks,” he said.

    “It’s the same toxic cocktail that was mixed of implicit guarantees and the distorted market that gives the [big] banks such an advantage over their smaller counterparts.”

    Barofsky added:  “In a way, what we’ve done is we’ve created this doomsday cycle of boom, bust, and bailout.”
    (Barofsky, Neil, TARP Inspector-General, Financial Armageddon, 26 January 2011)

    I have also learned that the true-blue US government would never put into bankruptcy and clean out their great and wonderful institutions of mammon, the large ineffective banks which even still pay out amazing bonuses to their staff for ripping off the nation, because that would be communism, wouldn’t it?

    ‘Two legs good, four legs bad.’

    That is why the government spends trillions of dollars propping up its large banks at the taxpayers’ expense, making the shareholders of the privately owned Federal Reserve astronomically wealthy, while impoverishing the US populace and the coming generations for a century. This is called privatising the gains and socialising the losses of the bankowning class.

    ‘Two legs good, four legs bad’

    Every time the Fed buys Treasuries to the order of $1 trillion or so it makes the shareholders of the Federal Reserve that much richer. This is also called a massive transfer of wealth from the US middle class to the 2% elite who already in 2007 owned 50% of the wealth – even then the skewest wealth distribution of any country in the developed world.

    ‘Two legs good, four legs bad’

    However, I do know that even as the world economy begins to pick up in 2011, the US debt which is now over $14tr (over 100% of GDP) will soon become unsustainable. Selling Treasury bonds will no longer be enough to pay even the interest on the loans. Who will buy Treasury bonds if not the Fed? Who indeed. All while the US military are right now at this very moment building the internment camps waiting to incarcerate the millions of unemployed who are going to be ejected from society when the economy dips again 2012/3 and collapses altogether 2015-7, and when no social security and food stamps are issued.

    ‘Two legs good, four legs bad’

    Without raising taxes and choking off the delicate economic recovery, the US would have to start a few wars and rob a few countries of some oil, or just default. Who would want that? Wouldn’t it be easier just to let the private shareholders of the Federal Reserve go ahead and own the whole United States and turn it into a private country. For the illuminati only, of course. After all, they own the shares. Privately.

    ‘Two legs good, four legs bad’

    A private country! That sounds good, doesn’t it? The alternative would be terrible wouldn’t it – a government of the people, by the people, for the people? A country governed by universal franchise – rank collectivism, communism, leninism, we can’t have that! Lincoln was a commie, wasn’t he? Let’s do away with the ‘pursuit of happiness’ too, while we are about it, it should never have been put into the constitution! No, wait, we’ll make wrought iron gates to the slave camps with ‘Pursuit of Happiness’ written in wrought iron above the gates! Done!

    ‘Two legs good, four legs bad’

    Then the privileged will have their own car lanes, shops and country houses and sole political party, and will have special ‘privileged’ credit chips implanted, unlike the unemployed in the concentration camps with their debit chips implanted which add to their debt every month. With their priviliged chips the illuminati will be able to go anywhere at any time and do whatever they want, unchecked and unregulated.

    Ayn Rand will be disinterred and a huge mausoleum will be erected for her remains and those of her husband. The mausoleum will be sculpted as a golden calf in 18 carat gold, and the worshippers of mammon will begin to flock to the mausoleum once a year on the anniversary of her death. Within months Randism becomes the new religion, replete with fundamentalist groups attacking other religions as hopelessly altruistic and thereby destructive to an economy increasingly based on self-interest and decreasingly based on welfare of all the stakeholders. After 2000 years of waiting and wondering, the great anti-christ religion is finally born.

    Suicide Randist bombers are hailed as martyrs for the new cause. State and local government are dismantled except for a great expansion of the police whose job it is to find ever more people for the camps. Soldiers have a great post-duty career available as guards at the new camps. Wonderful productivity is achieved at the mere threat of orange jump suits and sensory deprivation and water boarding.

    ‘The pursuit of unbridled egoism and flagrant self-interest’ is written into the new constitution. As for the slaves, since their debt will always be more than their ‘wages’, the length of time of incarceration will just be extended all the time, until the period of ‘life’ is given. Or ‘death’ if they get sick, old or won’t co-operate.

    The new economic age of innovation is enthusiastically embraced by all the latest new implanted credit chip yuppies, keen on improving Alfred Krupp’s productivity record: ‘Hey, isn’t this a great idea! Already 1% of the US population is behind bars – the highest percentage in the world. We’re on our way. The conditions are now here for massive growth in this sector.

    The yuppies rejoice: ‘Just as well. The Chinese have been getting just a little too big for their boots recently. Under the original deal they were supposed to keep their place in the One World Order. Under us. Look at all the factories and technology we have given them, and now they try and play one up in the One World Order. We can’t have that. Now they are building six new aircraft carriers and their own stealth aircraft, all designed and made in China, with stolen technology of course.’ The yuppies raise their voices: How dare they?’

    Now seriously, how can this be a surprise to anyone? What is the vain little US directive of a ‘One World Order’ to the Chinese who have run their country for at least 5-6000 years, and who have had pre-historic civilisation on the Chinese mainland for at least 60-70000 years?

    Robert Greenhill, Chief Business Officer of the World Economic Forum. (Reuters) BEIJING | Thu Sep 9, 2010 5:22am EDT said the following:
    “China is moving up the value chain of global competitiveness and in addition it has made great progress in business sophistication and innovation.”

    But there, there, don’t worry. Privately operated slave camps will become the best growth industry in the US in the days to come and the US will finally be able to beat the Chinese at their own game of cheap labour in sweatshops.

    Wake up America, the future of your country and your children, grandchildren and greatchildren is already ruined. Is this next step the barbarous future you want? Do you think Thomas Jefferson would accept it?

    “We might as well require a man to wear still the coat which fitted him when a boy, as civilized society to remain ever under the regimen of their barbarous ancestors.”
    (Thomas Jefferson, 1816)

    The ‘One World Order’ is just a cheap device to continue dictatorship, oppression, wars and bloodshed, and return us to slavery in a terrible modern form. ‘All countries of the world in democracy, harmony, peace and justice’ would be a far better concept.

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