Global services PMI scorecard: robust growth all round!

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Non-manufacturing/services PMIs
The non-manufacturing/services PMIs released for January 2011 echoed the robust manufacturing PMIs released earlier. The JP Morgan Global Services PMI rose to 58.2 from 57.3 in December and 54.6 in November. The Global Services PMI continued to be strongly underscored by a rampant US non-manufacturing sector jumping to a very robust 59.4 compared to 57.1 in December and 55.0 in November.

In the Eurozone, Germany’s robust services sector gathered even more momentum while the services sector in France accelerated rapidly. Elsewhere in the Eurozone Italy remains on the edge of contraction, but the contraction in Spain moderated significantly. After stagnating, the services industry in Ireland came alive again, with the PMI registering 53.9 compared to 50.0 in December. The robust expansion in France and Germany, together with the moderation in the contraction elsewhere in the Eurozone, took the PMI for the Eurozone to 55.9 in January from 54.2 in December. The services sector in the UK rebounded significantly to a strong 54.5 from a contracting 49.7 in December.

Although still frail, Japan’s services sector notched up the second consecutive month of expansion as the PMI rose from 50.2 in December to 50.4. The contraction in Australia’s services sector has again deepened after moderating in December, with the PMI sagging to 45.5 from 46.4.

In the emerging economies the robust expansion in India’s services sector again accelerated. China’s non-manufacturing PMI came in virtually unchanged and in line with what I expected from a seasonal point of view.

The rate of expansion in Russia moderated, though, but Brazil’s services sector is gaining traction.

Non-manufacturing/ Services PMI


US59.457.1Expansion accelerating, robust
Eurozone55.954.2Expansion accelerating
Germany60.359.2Robust pace accelerated
France57.854.9Expansion accelerating, robust
Italy49.950.2Weakening, on edge of contraction
Spain49.346.2Contraction moderated
Ireland53.950.0Expanding again
UK 54.549.7Expanding again
Japan 50.450.2Expansion continues
Australia 45.546.4Contraction deepening
Emerging Economies
Brazil52.751.9Expansion accelerating
China*56.456.5Robust expansion maintained
India58.157.7Expansion accelerating again, robust
Russia54.256.4Expansion moderated
JP Morgan Global Services 58.257.3Expansion 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 again accelerated in January at a substantially faster rate, taking the JP Morgan Global Composite PMI Index to 58.3 from 57.1 in December and 54.5 in November.

GDP-weighted/ Composite PMITrend
US***59.757.1Expansion accelerating, robust
Eurozone****55.654.7Expansion accelerating again
France*57.656.3Expansion accelerating again, robust
UK****56.652.1Expansion accelerated strongly, robust
Japan*50.949.4Expanding again
Emerging Economies
China**55.055.5Expansion moderating somewhat
India*59.658.9Expansion accelerated, robust
Russia*54.655.8Expansion moderating somewhat
UAE*54.253.0Expansion accelerated
JP Morgan Global Composite*58.357.0Expansion accelerated, robust

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

US economy: GDP growth accelerating
My GDP-weighted ISM PMI for the US leads US real GDP growth by a quarter. At this stage it indicates that in the fourth quarter the US economy grew by approximately 2.5% on a year-ago basis but that the growth in the first quarter of this year is likely to accelerate to more than 3%.

Sources: ISM; FRED; Plexus Asset Management.

Eurozone: GDP growth to gain momentum in Q2
The GDP-weighted PMI for the Eurozone indicates that in the fourth quarter of last year the Eurozone economy grew by approximately 2.5% on a year-ago basis. The PMIs during the fourth quarter of last year indicate 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 in the second quarter.

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

China’s GDP-weighted PMI: rebounded as expected in December but …
My calculated GDP-weighted PMI for China for January matched my expectations based on the apparent seasonal trend. The seasonal trend calls for a significant drop in February. The Chinese Golden Week that started on 2 February and consists of the Chinese New Year and other festivities lasting 15 days, in the past had a dampening impact on the manufacturing PMI and a severe negative impact on the non-manufacturing PMI as can be seen from the graph below. A significant jump in both manufacturing and non-manufacturing PMIs is likely in March.

Sources: CFLP; Plexus Asset Management.

From a forecasting point of view the CFLP manufacturing PMI gives a better picture of underlying GDP growth thanks 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 that China’s year-on-year GDP growth in the current continues to be approximately 10% − despite tighter monetary conditions.

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

Japan: to stave off double-dip recession in the short term
The significant diversion between Japan’s GDP growth and the manufacturing PMI continues. 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: gaining traction again, phew…!
The surge in both services and manufacturing PMIs pulled the UK out of danger of falling back into recession. From my reading of the GDP-weighted PMI of the UK grew by approximately 1.8% on a year-on-year basis in the fourth quarter of last year. It is evident that growth in the first quarter has accelerated to approximately 2%.

Sources: Markit; Plexus Asset Management.

The PMI numbers (both manufacturing and non-manufacturing/services) continue to surprise me on the upside. However, I am still fretting about how things will pan out in China given the stricter monetary policies of the PBoC, the potential contagion of the debt crisis in the Eurozone and the other black swan that suddenly appeared on the radar – the geo-political situation and especially Egypt. Furthermore, the upward pressure on prices as evident in the PMIs globally is very worrying. I do feel a bit more relaxed about the global economy, though.

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1 comment to Global services PMI scorecard: robust growth all round!

  • Doug Anthony

    Your blog an absolute delight. For those of us long volatility, it would appear that the odds are maybe against us short-term, even with the VIX on low ground.

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