Article written by Prieur du Plessis, editor of the href=”http://www.investmentpostcards.com”>Investment Postcards from Cape Town” blog.
Non-manufacturing/services PMIs
The non-manufacturing/services PMIs released for December 2010 indicated that the global services or non-manufacturing sector reached robust growth levels with the JPMorgan Global Services PMI jumping to 57.3 from 54.6 in November. The Global Services PMI was strongly underscored by the US being particularly strong with an increase to 57.1 from 55.0 in November.
Despite continued robust expansion in Germany, and France to a lesser extent, the rate of expansion in the Eurozone softened to 54.2 from 55.4 in November as the cracks in the debt-ridden member countries are increasingly exposed. Growth in Italy’s services sector slumped dramatically to a barely growing 50.2 from 54.4, the contraction in Spain is deepening while the services sector in Ireland slumped. The U.K. followed Ireland’s example and slumped into contraction with 49.7 compared to 53.0 in November.
Japan’s services sector is at long last expanding again albeit only marginally as the services PMI improved to 50.2 from 49.5 in November. The services sector in Australia has again contracted in December but at a more moderate rate as the PMI improved to 46.4 from 46.2.
In the emerging economies the expansion in India’s services sector is still robust but moderated to 57.7 from 60.1. The expansion in China’s services sector quickened to 56.5 from 53.3 in November mainly due to seasonal factors. The rate of expansion in Russia accelerated to a robust pace while Brazil’s services sector continues to expand at a moderate pace.
|
Non-manufacturing/ Services PMI |
TREND |
||
| Country | Dec-10 | Nov-10 | |
| US | 57.1 | 55.0 | Expanding faster, robust |
| Eurozone | 54.2 | 55.4 | Rate of expansion slowing |
| Germany | 59.2 | 59.2 | Robust pace maintained |
| France | 54.9 | 55.0 | Rate of expansion maintained |
| Italy | 50.2 | 54.4 | Slumped, on edge of contraction |
| Spain | 46.2 | 48.3 | Contraction deepening |
| Ireland | 47.4 | 50.8 | Slumped, contacting |
| UK | 49.7 | 53.0 | Slumped, contracting |
| Japan | 50.2 | 49.5 | Expanding again |
| Australia | 46.4 | 46.2 | Still contracting, moderating though |
| Emerging Economies | |||
| Brazil | 51.9 | 52.1 | Expanding at moderate pace |
| China* | 56.5 | 53.2 | Expansion accelerated, robust |
| India | 57.7 | 60.1 | Expansion moderated, still robust |
| Russia | 56.4 | 54.1 | Expansion accelerated, robust |
| JPMorgan Global Services | 57.3 | 54.6 | Expansion accelerated, robust |
Sources: Markit; CFLP*; ISM; Plexus
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 accelerated at a substantially faster rate taking the JPMorgan Global Composite PMI index to 57.1 from 54.5 in November.
| GDP-weighted/ Composite PMI | Trend | ||
| Country | Dec-10 | Nov-10 | |
| US*** | 57.1 | 55.4 | Expansion accelerating |
| Eurozone**** | 55.0 | 55.4 | Expansion moderating |
| Germany* | 60.3 | 59.0 | Robust |
| France* | 56.3 | 56.4 | Robust |
| UK**** | 50.9 | 54.4 | Expansion decelerated dramatically |
| Japan* | 49.4 | 48.7 | Contraction moderating |
| Emerging Economies | |||
| Brazil* | 52.3 | 51.5 | Expansion accelerating |
| China** | 55.5 | 54.0 | Expansion accelerating |
| India* | 58.9 | 61.3 | Expansion moderating, robust |
| Russia* | 55.8 | 54.7 | Expansion accelerating |
| JPMorgan Global Composite* | 57.1 | 54.5 | Expanding at a significantly faster rate |
Sources: *Markit; **CFLP, Li & Fung, Plexus; ***ISM, Plexus; ****Markit, Plexus
Conclusion
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 the US economy in the fourth quarter 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.
Sources: ISM; FRED; Plexus Asset Management.
Eurozone: GDP growth to moderate
The GDP-weighted PMI for the eurozone gives me insight to where the Eurozone economy is heading. In my opinion the 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 GDP is likely to moderate somewhat in the first quarter of this year.
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 December was in line with my expectations based on the apparent seasonal trend. The outlook for January and February is very uncertain, though. The so-called Chinese Golden Week which consists of the Chinese New Year and other festivities lasting 15 days had a significant impact on the economy in the past. My analysis indicates that when the Golden Week fell in the second half of January, that month’s composite PMI was very weak. If it fell at the end of the month or the first week of February, both January and February were weak. The next Golden Week is scheduled to start at the end of the first week of February this year and I will therefore not be surprised if both the manufacturing and non-manufacturing PMIs for January and February surprise the market on the downside.
Sources: CFLP; Plexus Asset Management.
From a forecasting point of view the CFLP manufacturing PMI gives a better picture of underlying GDP growth due to lower seasonality. From the manufacturing PMI’s trend in the last quarter of 2010 it is evident that China’s year-on-year GDP growth accelerated in the fourth quarter to approximately 10%.
Sources: Dismal Scientist; Li & Fung; Plexus Asset Management.
Japan: Tough times ahead?
The significant diversion between Japan’s GDP growth and the manufacturing PMI continues. If the trend in the manufacturing PMI is likely to shape the future then I am afraid that Japan’s economy may soon find itself in a double-dip recession.
Sources: Dismal Scientist; Markit; Plexus Asset Management.
UK economy: Grave danger ahead
Just when it appeared that the UK economy had steadied and was heading higher my GDP-weighted PMI in December slumped precariously close to 50 where a level below that would indicate contraction in the economy. In fact, the services sector that accounts for more than 77% of the economy is already in contracting mode.
Sources: Markit; Plexus Asset Management.
The composite PMI currently indicates that growth in the fourth quarter has slowed to approximately 2% on a year-ago basis from the third quarter’s 2.8% but could slow to 1.5% in the first quarter of this year.
Sources: Dismal Scientist; Markit; Plexus Management.
I remain skeptical regarding the outlook for the global economy. There are just too many black swans out there! China’s Golden Week is around the corner. Will the quantitative easing in the US weather the housing storm? Significant cracks in the Eurozone’s debt-ridden member states have suddenly opened. What about the potential contagion of the debt crisis in the Eurozone?
Global PMI Scorecard: Robust growth but … was first posted on January 11, 2011 at 9:00 am.
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