Global PMI Scorecard: Growth slowing sharply!

 EmailPrint This Post Print This Post

The PMIs for April indicate that, while the global economy is still expanding, the pace has moderated considerably. The JPMorgan Global Composite PMI, where the manufacturing and non-manufacturing/services are both taken into account, dropped to 51.8 from 54.7 in March (a number above 50 indicates expansion) due to the ripple effect of the contraction of Japan’s economy following the twin disaster in that country.

The contraction in Japan has worsened with the Markit composite PMI falling to 35.0 from 36.1 in March as both the manufacturing and service sectors contracted further. Economic activity in the US has slowed significantly with my ISM GDP-weighted composite PMI at 54.6 the lowest since September last year. Despite the fact that the manufacturing PMI held up reasonably well at a robust 60.4 compared to 61.2 in March, the non-manufacturing PMI sank to 52.8 from 57.3. The Eurozone’s economy remains resilient, though, with my GDP-weighted composite PMI coming in at 57.1 compared to 57.3 in March. France’s robust economy continues to accelerate at an increasing rate, while Germany’s robust growth rate has moderated slightly. The UK and Hong Kong also felt the aftershocks as their composite PMIs moderated strongly.

*Japan is off the screen due to the impact of the disaster on the numbers.

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

GDP-weighted/ Composite PMITrend
CountryApr-11Mar-11
US***54.658.2Expansion moderated sharply
Eurozone*57.157.3Expansion moderating slightly, robust
Germany*59.260.4Expansion moderating slightly, robust
France*62.459.1Robust pace accelerated further
UK****54.457.1Expansion decelerated sharply
Japan*35.036.1Contracting severely
Emerging Economies
China**58.757.5Above-trend seasonal acceleration
Brazil*52.554.0Expansion moderating
India*60.760.0Robust pace accelerated further
Russia*55.455.1Expansion accelerated
Hong Kong*52.954.9Expansion moderating
UAE*57.554.7Expansion quickened, robust
Saudi Arabia*62.762.8Robust
JPMorgan Global Composite*51.854.7Expansion moderated sharply 

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

Despite a slight easing, growth in the global manufacturing sector held up well, except in the case of Japan where the contraction deepened. My GDP-weighted manufacturing PMI for the major economies dropped 0.5 points to 55.5 in April – the lowest in four months.

The pace of expansion in the USA’s manufacturing sector eased slightly to a still robust 60.4 in April from 61.2 in March. The manufacturing sector’s pace in the Eurozone accelerated to a buoyant 58.0 from 57.5, with stronger growth in France and Germany in particular. Greece continues to see a further moderation of the contraction in its manufacturing sector, but Spain is approaching contraction again. Ireland’s expansion is holding up well, but the moderation in the UK’s manufacturing sector intensified with the PMI dropping to 54.6 in April from 57.1 in March. This compares to a robust 61.5 in February.

As argued in a previous article, I think the moderate decline from 53.2 to 52.9 in China’s CFLP manufacturing PMI is rather flattering. April is normally a seasonally “high” month and it therefore shows the great impact that Japan’s twin disasters is having on China’s economy and especially the manufacturing sector. The Japanese situation has also rubbed off on the manufacturing sectors of emerging economies such as Russia, Turkey, South Korea, Russia and South Africa.

 

Manufacturing PMI

 

Trend

CountryApr-11Mar-11
US*****60.461.2Somewhat slower, robust
Eurozone*58.057.5Expansion accelerating, robust
Germany*62.060.9Expansion accelerating, robust
France*57.555.4Expansion accelerating, robust
Greece*46.845.4Contraction eased
Italy*55.556.2Expansion moderated, strong
Spain*50.651.6Expansion moderated
Ireland*56.055.7Expansion accelerating, robust
U.K.*54.657.1Expansion moderated
Japan*45.746.4Contraction accelerating
Australia*48.447.9Contraction moderated
Emerging Economies
Brazil*50.753.2Expansion moderated sharply
China**52.953.4Expanding, sharply below seasonal trend
Czech*59.058.6Expansion accelerating, robust
Poland*54.454.8Expansion moderated
Turkey*52.756.1Expansion moderated sharply
India*58.057.9Expansion accelerating, robust
Russia*52.155.6Expansion moderated sharply
Taiwan*58.255.6Expansion accelerating, robust
RSA***56.457.2Expansion moderated, robust
S Korea51.752.8Expansion decelerated
Global****55.556.0Expansion decelerated, robust

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

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

Where the still relatively robust global manufacturing PMI numbers were likely to lead to improved global industrial production growth through end June, a hiccup is on its way.

Sources: Markit; Li & Fung; Plexus Asset Management; ISM; I-Net Bridge.

The immediate outlook for growth in industrial metal prices is therefore cloudy, especially in view of the possibility that the Chinese manufacturing industry could be significantly overstocked.

Sources: Markit; Li & Fung; Plexus Asset Management; ISM; I-Net Bridge.

Non-manufacturing/Services PMIs

The JPMorgan Global Services PMI for April sank to 51.0 from 54.0 in March after a robust 59.3 in February.

The US ISM non-manufacturing PMI fell to its lowest level since August last year to 52.8 from 57.3 in March after reaching a 66-month high of 59.7 in February this year. The Eurozone PMI moderated somewhat to 56.7, but the acceleration in the already robust services sector in France masked a significant drop in Germany’s PMI from 60.1 to 56.8 in April. Spain managed to eke out some growth, but Ireland again teeters on the brink of contraction. Growth in the UK’s services sector eased materially to 54.3 from 57.1 in March, while the pace of contraction in Japan increased. The rate of expansion in the services sectors of India and Russia quickened, though, while the robust pace of growth in China’s non-manufacturing sector came in at the upper level of the April seasonal high. The contraction in Australia’s services sector ended with the PMI increasing to 51.5 from 46.5 in February.

*Japan is off the screen due to the impact of the disaster on the numbers.

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

 

Non-manufacturing/ Services PMI

 

TREND

CountryApr-11Mar-11
US**52.857.3Expansion decelerated sharply
Eurozone56.757.2Expansion moderated, robust
Germany56.860.1Expansion decelerated sharply, robust
France62.960.4Robust pace accelerated further
Italy52.253.3Expansion moderated
Spain50.448.7Expanding again
Ireland50.251.1On edge of contraction
UK54.357.1Expansion decelerated sharply
Japan35.035.3Severe contraction continues
Australia51.546.5Expanding again
Emerging Economies
Brazil53.253.5Expansion moderated slightly
China*62.560.2Seasonal acceleration, robust
India59.258.8Robust pace accelerated further
Russia55.853.3Expansion quickened, robust
JPMorgan Global Services 51.054.0Pace of expansion decelerated sharply, on edge of contraction

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

Summary

US economy: GDP growth accelerating

My GDP-weighted ISM PMI for the US leads US real GDP growth by a quarter. The advance estimate of first-quarter GDP growth came in at 2.3% compared to my estimate of 3% on a year-ago basis. I do think, however, that the actual number may come in closer to 3%. I initially thought that, if the robust manufacturing and non-manufacturing PMIs held up through end June barring any fallout of the Japanese disaster, the year-on-year GDP growth could reach 4% and beyond in the second quarter, but the fallout has shown its hand. If there is no further deterioration in the PMIs, I am of the opinion that second-quarter growth could come in at approximately 3.0 to 3.5%.

Sources: ISM; FRED; Plexus Asset Management.

Eurozone: GDP growth to gain momentum in Q2

The PMIs during the fourth quarter of last year indicates that GDP growth in the first quarter is likely to come in at approximately 2.5% compared to a year ago and to accelerate to 3% in the second quarter.

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

China: Still going strong!

My GDP-weighted PMI for April was virtually unchanged from last year’s level despite China’s disappointing manufacturing PMI that fell to 52.9 from 53.4 in May, principally as a result of the aftershocks of Japan’s twin disasters.

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 first quarter of this 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 still running at between 9.5% and 10%.

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

Japanese economy: to get worse before recovering?

In Japan the jury is out on what impact the twin disasters will have on the economy. The manufacturing sector is holding up reasonably well, but this may give a distorted view of the eventual impact on the economy, especially in view of the severe contraction in the services sector.

Sources: Dismal Scientist; Markit; Plexus Asset Management.

UK economy: Continuing to gaining traction…

First-quarter GDP growth came in at 1.8% compared to my estimate of approximately 2.0% year-on-year based on my GDP-weighted PMI. It is evident that growth in the second quarter will accelerate to approximately 2.5% to 3.0%, but the fallout from the Japanese disaster may shave 0.5% off this number.

Sources: Markit; Dismal Scientist; Plexus Asset Management.

Conclusion

The onset of a declining trend in the Global PMIs is now a fact. The flock of black swans in the global pond is growing and there is no evidence yet that conditions may be easing. The situation has been expanded by the terrible natural disaster in Japan, and exacerbated in the short term by the killing of Osama bin Laden. The geopolitical situation in the Middle East and North Africa is slightly improving, but is likely to put a floor under oil prices. The PBoC has again tightened its monetary policy, but my hunch is that more needs to be done to reign in the Chinese economy and especially the services sector. The potential contagion of the debt crisis in the Eurozone and the impact of austerity measures on the Eurozone economies are still major uncertainties. These black swans and their evolvement are likely to continue to drive markets and influence and prescribe the policies of central bankers globally.

Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.

OverSeas Radio Network

Leave a Reply

  

  

  

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Top 100 Financial Blogs

Recent Posts

Charts & Indexes

Gold Price (US$)

Don Coxe’s Weekly Webcast

Podcast – Dow Jones


One minute - every hour - weekdays
(requires Windows Media Player)
newsflashr network
National Debt Clock

Calendar of Posts

May 2011
MTWTFSS
« Apr Jun »
 1
2345678
9101112131415
16171819202122
23242526272829
3031 

Feed the Bull