November Manufacturing PMIs: beating the estimates!

The November manufacturing PMIs came in much stronger than the market and I expected. Only Spain, Italy and Australia reported weaker growth, with the U.S. marginally lower. The manufacturing sectors in most countries except Australia, Japan and Greece continue to expand. Brazil is on the brink of expanding again, whereas Spain finds itself on the edge of contraction.

In the Eurozone the manufacturing sectors in France, Germany and the Netherlands are particularly buoyant, while Ireland surprised on the upside. The biggest surprise was the U.K., though, where the PMI jumped from 54.9 to a very buoyant 58.0.

In Asia Japan’s PMI improved slightly but the manufacturing sector remains in the grip of a recession. The tigers in Asia – China and India – had a strong showing and Taiwan has at long last moved out of a period of contraction. Emerging Europe is continuing its relatively strong expansion, with Turkey in particular recording faster growth.

After two successive months of contraction South Africa’s manufacturing sector is breathing again, rising from 49.8 to 52.9.

Manufacturing PMI
Country	Nov-10	Oct-10
U.S.*****	56.6	56.9
Eurozone*	55.3	54.6
Germany*	58.1	56.6
France*	57.9	55.2
Netherlands*	56.5	55.4
Greece*	43.9	43.6
Italy*	52.0	53.0
Spain*	50.0	51.2
Ireland*	51.2	50.9
U.K.*	58.0	54.9
Japan*	47.3	47.2
Australia*	47.6	49.4
Emerging Economies
Brazil*	49.9	49.5
China**	55.2	54.7
Czech*	57.3	57.2
Poland*	55.9	55.6
Turkey*	56.4	54.3
India*	58.4	57.2
Russia*	51.1	51.8
RSA***	52.9	49.8
Taiwan*	51.7	48.6
Global****	54.0	53.7

Sources: Markit*; Li & Fung**; Kagiso***; Plexus Asset Management****; ISM*****.

Sources: Markit*; Li & Fung**; Kagiso***; Plexus Asset Management****; ISM*****.

It appears that on a global basis the manufacturing PMI is bottoming, especially with the three-month moving average of my global GDP-weighted (major economies) PMI looking to edge up in coming months.

Sources: Markit*; Li & Fung**; Kagiso***; Plexus Asset Management****; ISM*****.

Although growth in global industrial production on a year-ago basis is set to slow further towards the end of January next year, it is mainly as a result of Japan coming from a high. Industrial growth is likely to gain momentum in the first quarter next year if the global PMI maintains its current relatively elevated level.

Sources: Markit*; Li & Fung**; Kagiso***; Plexus Asset Management****; ISM*****; I-Net Bridge.

The same goes for global economic growth.

Sources: Markit*; Li & Fung**; Kagiso***; Plexus Asset Management****; ISM*****; I-Net Bridge.

Industrial metal prices will be strongly supported if the global manufacturing PMI can maintain current levels.

Sources: Markit*; Li & Fung**; Kagiso***; Plexus Asset Management****; ISM*****; I-Net Bridge.

I will not be surprised if the non-manufacturing/services PMIs to be released tomorrow (December, 3) come in better than is generally expected. Retail sales in the U.S. and Germany in particular are strong and improving.

While the numbers were better than expected, I remain somewhat skeptical regarding the outlook for the global economy. In particular, I am uneasy about how things will pan out in China given the stricter monetary policies of the PBoC. I am also a doubting Thomas regarding the potential outcome of the second round of quantitative easing in the U.S. and especially about whether that will be able to turn the house market. Lastly, I remain worried, no, scared, about the potential contagion of the debt crisis in the Eurozone.