Wednesday, July 1, 2009

June Manufacturing PMI

Global manufacturing took another step towards growth in June - but the process was, as ever, uneven. The JPMorgan Global Manufacturing PMI posted 46.9, its highest reading since last August. The current output component even expanded slightly following a year-long period of contraction. The PMI has now remained below the neutral 50.0 mark for thirteen successive months.

The principal factors weighing down on the level of the PMI in June were declines in new orders, employment and inventories. However, rates of contraction in new work and employment eased to their weakest for thirteen and eight months respectively. Looking ahead, the new orders to inventories ratio – which tends to move in advance of the production cycle – rose for the sixth month running to its highest since April 2004. Only 4 PMIs - those for China, India, Turkey and Sweden posted growth readings in June (although Sweden is not included in the JP Morgan survey). There was a general easing in the rates of contraction recorded elsewhere. The next two to three months will now be critical in order to decide whether the sector is going to move over to expansion mode, and if it does, at what pace?

Two general themes seem to stand out in this months PMI report. Firstly the key role being played by some emerging market economies, and secondly the important nudge upwards that some national industrial sectors have received from currency devaluation - with the UK and Sweden being the most obvious cases.


Some people have been saying in response to warnings that this recovery will be export lead, "exports what exports"? What a load of tripe! Without exports there will be no recovery. The next lesson in abc economics: in times of crisis relative currency values matter more. And to prove it, Swedens PMI just poked into the growth zone, 50.5, following 43.7 last month. The 17% odd devaluation with the euro would have nothing to do with this, would it? Welcome Sweden, the worlds fourth 50+ PMI.

Here's a twelve month chart for the Euro vs the Swedish Krona.


I don't have a nice chart here, but the UK manufacturing PMI figure rose for the fourth consecutive month to post its highest reading in over a year, and was up more than anticipated to 47.0 in June from 45.4 in May. Still contraction though, and the relations between output levels and destocking have still to sort themselves out.


Activity in the 16-nation euro zone's manufacturing sector continued to fall in June, but contracted at the slowest pace in nine months, according to the Markit manufacturing purchasing managers index released Wednesday. The PMI rose to 42.6, up from 40.7 in June and slightly higher than a preliminary estimate of 42.4. The PMI has been in negative territory for 13 consecutive months, the longest stretch since the survey began.


Germany's manufacturing sector shrank for the 11th month in a row in May, but the severity of the contraction was the least marked for any month since October, and the PMI at 40.9 was up from 39.6 last month, and better than the flash reading of 40.5. This still represents a very strong contraction, however, and Germany has a long road ahead before it returns to expansion.


The decline in French manufacturing activity also eased in June, although firms reported they continued to slash jobs at a rapid pace. The final Markit/CDAF manufacturing purchasing managers' index rose for the fourth straight month in June, hitting 45.9 compared to 43.3 in May. Much better than Germany, but not as good as the UK. UK industry is evidently benefiting from the devaluation effect at this point.


One of the great mysteries for people in Spain is why the German economy seems to be doing even more badly than theirs is. In this sense June was not a disappointment, since the Spanish PMI, which rose to 42.8 from 39.8 in May, the highest reading since May 2008 and well off December's record low of 28.5, also was above Germany's 40.9, and Germany has no housing bust.


Irish manufacturing PMI data for June pointed to another sharp deterioration of operating conditions. However, the rates of decline of output, new orders and employment all eased over the month. The seasonally adjusted NCB PMI rose to 42.5 in June, from 39.4. Although the sector continued to deteriorate at a considerable pace at the end of the second quarter, June's contraction was the slowest since last September. Even so this was the sixteenth month in a row that output at Irish manufacturers has decreased.

June's fall was driven by fragile demand (particularly from domestic sources) and the negative impact of this on new orders. New export business decreased at a weaker pace than overall new orders, although the reduction was still solid. The relative strength of the euro against sterling made new orders from the UK harder to secure, according to the report.


Greece's seasonally adjusted Markit Manufacturing PMI came in at 47.7 in June, up from 46.1 in May, the PMI rose further from March’s record low to its highest position since October 2008. Employment, however, fell for the fourteenth successive month, by far the most sustained period of workforce reduction in the survey history.

Eastern Europe

In Eastern Europe, the Polish manufacturing PMI rose slightly to 43.0 in June, from 42.5 in May. This is still quite a weak performance for an economy which, in theory, is holding up rather well, and was below consensus expectations for a rise to 43.2. Still, the PMI was at its highest level since October 2008.

Czech Republic

The Czech PMI also inched up to a nine-month high in June but still registered its 12th straight month of decline. The reading rose to 41.9 from 40.5 in May and a record low in January. The Czech economy shrunk by 3.4% in the first quarter from the previous three months but the PMI has now been for for five months in a row. May industrial output fell 21.7% y-o-y, and new orders fell 27.6%.


Hungary's contraction is more or less moving sideways at the moment. The June PMI came in at 45.8 in June, a slight uptick from 45.4 in May. The output improvement is almost all due to the export sector. Hungary is in deep recession but June exports offer a slight positive sign. The government projects that GDP will contract this year by nearly 7% as Germany also contracts. Germany and central europe are in lockstep.


Russia’s manufacturing industry shrank last month at the slowest pace since September, and VTB’s Purchasing Managers’ Index advanced to 47.3 in June from 45.3 in May. Russia’s industrial production has now stabilized at between 15 percent and 17 percent below last year’s level, according to Prime Minister Vladimir Putin last month. The government currently expects an 8.5 percent GDP contraction this year.


Well Turkey is the fourth in the 50+ growth group since PMI data surprised positively – reading 53.9 up from 51 in May. This result is good news for Turkey following yesterday’s very disappointing GDP numbers, which showed that the Turkish economy contracted by a whopping 13.8% y/y. The immediate future looks a bit more promising than Q1.



The pace of contraction in Japanese manufacturing activity slowed for a fifth straight month in June, a survey showed on Tuesday, as companies gradually recover from Japan's deepest postwar recession. The Nomura/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 48.2 in June, the highest since 48.6 in April 2008, from 46.6 in May.

However, the figure remained below the 50 threshold that separates contraction from expansion for the 16th straight month. The current output component of the PMI index gained for the fifth straight month, to 50.6 from 47.9 in May, edging above the boom-or-bust line for the first time since February 2008. The index for new export orders rose to a seasonally adjusted 51.2 in June from 49.8 in May, also the fifth month of improvement. That also marked the first growth in export orders in almost a year and a half as global trade recovered from last year's sharp declines.


China's manufacturing expanded in June, adding to signs the world's third-largest economy is rebounding from the collapse in global trade, but few new jobs were created, according to both the Chinese PMI surveys. Brokerage CLSA Asia-Pacific Markets said its purchasing managers index rose to 51.8 from May's 51.2. The government-sanctioned China Federation of Logistics and Purchasing said its own PMI edged up slightly to 53.2 from May's 53.1.


Manufacturing activity in India slowed slightly in June but still expanded for a third straight month, reflecting strong local demand, according to the survey, even as exports showed some creeping signs of improvement. The Markit PMI fell back slightly - to 55.34 in June from May's 55.7, the highest in eight months. The Indian PMI hit a trough of 44.4 in December and has steadily risen since.

South Africa

South Africa’s industrial output continued to fall sharply, although the PMI gained for the second month in a row in June. The seasonally adjusted index increased to 37.9 from 37.3 in May, Kagiso Securities said in the statement released in Johannesburg today. The index has now been below 50 since May 2008.


United States

The U.S. manufacturing sector shrank once more in June, but again at a slower pace than in May.The Institute for Supply Management said its index of national factory activity edged up to 44.8 to in June from 42.8 in May. This was slightly above Reuters economists median expectation for a reading of 44.5. So we continue to improve, but the next 3 months will still be critical to confirm or otherwise the improvement.


Well, just about to wind the day up on the PMIs now. Brazil is in and posted 48.1 in June. That was the highest reading for nine months, and means the Brazilian industrial sector is nudging its way back towards expansion. However, the index rose only 0.3 points from 47.8 in May, so the recovery rate which we have seen since the end of the first quarter stalled somewhat in June.

Methodological Note

The Global Report on Manufacturing is compiled by Markit Economics based on the results of surveys covering over 7,500 purchasing executives in 26 countries. Together these countries account for an estimated 83% 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.

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