Sunday, July 3, 2011

Some mixed messages from global manufacturers

The purchasing managers index (PMI) is a significant indicator of economic sentiment. A PMI reading above 50 suggests economic expansion, but the direction of change from the prior month is also important. On Friday, the U.S. PMI rose to 55.3 in June, up from 53.5 in May (a decline to 52 was expected). In China, the PMI was 50.9 in June, down from 52 in May - its lowest level since February 2009. In India, PMI fell to 55.3 in June - a nine-month low. In South Korea, PMI dipped to 51.1 in June - a six-month low. In the U.K, PMI decreased to 51.3 in June from 52 in May - a 21-month low. For the Eurozone region, PMI dropped to 52.0 in June, down from 54.6 in May – an 18-month low. Additionally, the Bank of Japan’s quarterly Tankan index of manufacturing sentiment fell to minus 9 in June from 6 in March (a negative number suggests a more pessimistic mood).

MY TAKE: While most of these results suggest slower levels of economic growth, they do not point to contraction. Contributing factors to the weakness may include supply chain disruptions from Japan’s tsunami, as well as efforts by some governments to manage inflation. Until unemployment levels, wage stagnation, and sovereign debt issues improve, economic expansion will be constrained and global markets will likely remain volatility

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