Sunday, October 3, 2010

Global Manufacturing PMI at 14-Month Low (Chart) "Production is likely to stop growing or even contract"


Global Manufacturing PMI Dips -1.2%

Global Manufacturing PMI at 14-Month Low, Expanding at Slower Rate

Official Statement JP Morgan reported on October 1, 2010, "Growth of the global manufacturing economy moderated again in September. At 52.5, down further from April's near six-year high, the JPMorgan Global Manufacturing PMI™ fell to a 14-month low. Rates of expansion eased for production, new orders, new export orders and employment." Commenting on the survey, David Hensley, Director of Global Economics Coordination at JPMorgan, said: "The September PMI fell to its lowest level in fourteen months, following slower growth in production, new orders and employment. The PMI is likely to fall further in coming months, based on the continued slide in the ratio of new orders to inventory. As a result, production is likely to stop growing or even contract in the next few months on a transitory basis."

Cycle History The current JPM Manufacturing PMI is up +18.8 and +55.8% from the Great Recession cyclical bottom of 33.7 in December 2008. The PMI is down -5.3 and -9.2% from the recent cyclical peak of 57.8 in April 2010. Therefore, the current PMI is closer to the cyclical peak than the trough. The PMI is a percentage - not a total. More about the PMI below the chart.

Trend The current PMI continues below the April 2010 peak and has decreased the 5 subsequent months. The current PMI is below the 12-month moving average of 55.1 but still above the 24-month moving average of 48.8. The short-term trend has been downwards.

Chart (JPM Monthly Global Manufacturing PMI) Below is a chart of the latest 27 months of the Purchasing Managers' Index (PMI) from July 2008 through the latest month reported, September 2010. The PMI has been greater than 50, indicating global manufacturing is expanding, since August 2009 - 14 consecutive months. As can be seen, the PMI bottomed in December 2008 at 33.7, ascended significantly through August 2009 to 53.1. The PMI eventually continued upwards to a peak of 57.8 in April 2010. There have been 5 consecutive declines since. However, the PMI still indicate global manufacturing was expanding, just a a slowing rate.

Commentary The September Global Manufacturing PMI of 52.5 and a -1.2% decrease from August is disappointing, as was the September decline in the USA Manufacturing PMI reviewed here. Not only a USA economic slowdown persists, but this slowdown is on a global level . A continuation of these declines will adversely affect not only the USA GDP but other nations' as well. Most striking was the comment by David Hensley, Director of Global Economics Coordination at JPMorgan, "As a result, production is likely to stop growing or even contract in the next few months on a transitory basis."

About the PMI
The Global Report on Manufacturing is compiled by Markit based on the results of surveys covering over 7,500 purchasing executives in 29 countries. Together these countries account for an estimated 90% of global manufacturing output. Questions are asked about real events and are not opinion based. Data are presented in the form of diffusion indices, where an index reading above 50.0 indicates an increase in the variable since the previous month and below 50.0 a decrease. 50.0 = no change level.

Data sources: Country % share of global GDP
United States 28.8
Japan 12.8
China 6.5
Germany 5.2
United Kingdom 4.3
France 3.8
Italy 2.9
Brazil 2.1
India 2.0
South Korea 1.9
Spain 1.8
Australia 1.3
Netherlands 1.1
Russia 1.1
Turkey 1.0
Taiwan 0.8
Switzerland 0.7
Poland 0.6
Austria 0.6
South Africa 0.5
Denmark 0.4
Greece 0.4
Israel 0.4
Ireland 0.3
Singapore 0.3
Czech Republic 0.2
New Zealand 0.2
Hungary 0.2

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Other Links
Institute for Supply Management ISM
JPMorgan Global Manufacturing PMI Press Release JPMorgan (pdf download)
*Data courtesy of the Institute for Supply Management & JPMorgan*

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