Global Manufacturing PMIs

PMIs need to be interpreted within a much wider perspective and for many countries that means the health of the world economy, especially China and Europe and their own internal dynamics.   Usually when underlying growth dynamics are positive PMIs can be strong indicators. 

European PMIs registered no change in growth on the prior month and remain at modest growth levels that I would associate with a rebound from lower operating levels but not necessarily a recovery.   Dynamics dominate and these are pretty heavy.  The September Eurozone Retail PMI also fell back below 50 to 48.6.

Key emerging markets remained weak:

The HSBC Mexico PMI fell to 50 in September, the HSBC Brazil PMI remained below 50, the HSBC Indian remained below 50 at 49.6, as did the HSBC Russian PMI at 49.4.while the HSBC China PMI rose modestly to 50.2.  The core BRIC countries are not driving world economic growth as they need to. 

Key export dynamic markets showed some improvement:

In Taiwan, the HSBC PMI showed a rebound from 50 to 52 (although the overall growth context in Taiwan remains weak), in South Korea the PMI moved up to 49.7 (again within a weak context).  .   TAIWAN and South Korea are key barometers of international trade and their PMIs should be closely watched.  In other emerging markets, the Indonesian PMI moved up to 50.2. 

What needs to be watched here is whether the improvement is temporary and related to a small rebound in European activity and a short burst in activity in China, or whether we are at the start of genuine period of growth.  

In Japan the PMI rose to 52.2…”Business conditions continued to improve at a solid pace in the Japanese manufacturing sector in September. New orders rose at the fastest rate in
over three years, output growth strengthened and backlogs grew at the fastest pace since April 2006.  However, employment failed to respond to these developments and was broadly unchanged
.”  

The trouble with Japan is that it is still overly dependent on export growth, government expenditure (with quite horrific sovereign debt fundamentals) and the recent stimulus measures that have brought about a significant decline in the yen and has significant demographic problems (the Labour in August 2013 was more or less the same as it was 2 years ago). 

Gross fixed capital formation remains at historically weak levels and we probably need a turnaround in global growth fundamentals before we can place forward looking reliance on Japanese PMI data. 

Additionally consumption is dependent on wage growth, which has stagnated, and is yet to pick up sufficiently…and employment has fallen in both July and August…

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