So what’s the problem with the PMIs? I could talk about a couple of things here, such as the divergence within emerging and developing economies, and the divergence between them. I could talk about the topping out of the global manufacturing PMI. But that’s not it.
The one in the main chart today is the divergence between the ISM manufacturing PMI and the Markit manufacturing PMI. The June readings had the ISM up 2.9pts to 57.8 and Markit down -0.6pts to 52.1 so a notable difference in level and change.
For me, there are a couple of observations:
1. Take a 3m rolling average view and regardless of the level the trend is the same i.e. both saw a topping out after the late 2016 surge;
2. The last time there was a big disagreement between them the GDP growth outcome was more or less in the middle (from here that would mean 2-3% growth vs 3-4% implied by ISM);
3. There is an interesting comovement between the China and US PMIs (applies to both official vs ISM and Markit vs Markit) which highlights the shared prospects and currency impacts (recall their currencies are still relatively closely tied, and both saw significant appreciation and subsequent easing in the currency).
So what do you do with it? The main conclusion is GDP growth will still be respectable, and China/currencies/commodities are still critical to the outlook – for now, these factors are behaving.
The two PMIs tell a story of either accelerating GDP growth or muddle along, middle-of-the-road GDP growth. The truth may well lie somewhere in the middle.
Taking a look at the Markit PMIs, the Chinese and US manufacturing PMIs have for the most part moved in a fairly synchronized fashion. The bounce in the China PMI then may offer some hope on the outlook.
