Global manufacturing appears to be picking up - Wikipedia
Better than expected news is hard to come by these days, particularly on the macroeconomic data front; but global manufacturing numbers from China, the U.S., and Europe, indicate the slump in production could be behind us, as modest pickups in activity fuel cautious optimism.
In the U.S., the ISM manufacturing index rose to 51.6 in September from 50.6 in August, beating forecasts and moving farther from contraction territory (i.e. any reading below 50).
“Following consecutive declines in July and August, this is an encouraging sign that the mid-cycle slowdown in the manufacturing sector has largely run its course, that the sharp declines in some regional surveys (such as the Empire State and Philadelphia Fed) were misleading, and that output continues to grow, albeit modestly,” explained analysts at Barclays, highlighting the reversal in the production component, going from a contracting-48.6 to an expanding-51.2 this month as the month's outperforming factor.
Over in China, official PMI readings appear to have stabilized, rising for the second consecutive month to 51.2 (from 50.9) in September. While seasonal factors are likely to have played a role, explain Nomura’s analysts, the number “reaffirms [Nomura’s] base case view that the economy is in the midst of a moderate slowdown; not a hard landing.”
New orders, a proxy for global demand for Chinese goods, reversed a 48.3-contraction reading from August, jumping to 50.9 in September. While a pickup in global demand is encouraging, the number remains well below the historical average of 55.7 (excluding September ’08), suggesting global demand remains fragile.
“Given industrial production and fixed asset investment are still growing at decent levels, and inflation is likely to remain above 6% in September, we expect monetary policy to remain in a wait-and-see mode for the rest of this year,” said Nomura’s analysts.
Europe, travailing a dire state of affairs, makes the case that data that isn’t as bad appears good. The Euro-area manufacturing PMI reading continued its second consecutive monthly contraction, hitting 48.5 (upwardly revised from 48.4), its lowest level since August ’09. While the report appears negative on the face of it, “some signs of bottoming out have emerged in the countries which tend to have a lead to euro-area manufacturing activity,” according to Nomura, suggesting manufacturing growth looks likely in coming months.
The specific report showed only Germany in expansionary territory, albeit moderately, at 50.3 (upwardly revised from 50). French PMI numbers were upwardly revised from 47.3 to 48.2, while Italy beat consensus revised up to 48.3 (from 47 and expectations of 46.5).
What was positive was the behavior of both China and the U.S.’s manufacturing indices, which generally act as lead indicators of European activity. The Chinese PMI tends to lead the Euro-area on by three months, statistically speaking. China stabilized in August and increased in September. The U.S. ISM survey leads Europe by one to two months, and, as noted above, beat expectations on the upside. Taken together, global manufacturing numbers “look positive for a pick-up in the euro-area PMI towards the end Q4.”
While the global economy remains mired in macroeconomic uncertainty and recessionary risk, positive data on the manufacturing front could be the light at the end of the tunnel. A pickup in production could help fuel a sustainable expansion and jump start the cycle of positive economic growth.
