A few months back, I gave y’all a snapshot of how manufacturing conditions are faring among global economies. It’s about time we take a look at an updated one!
For the newbies just tuning in though, here’s a quick review of what a manufacturing PMI is all about and why it matters. A purchasing managers index (PMI) report is simply a measure of business conditions in an industry taken some time in the middle of the month. In a manufacturing PMI report, a few hundred purchasing managers from the manufacturing industry are asked about their opinions on issues such as employment, inventory levels, new orders, and state of production and supplier deliveries.
An index reading of 50.0 and above hints at optimism among the manufacturers, which could lead to industry expansion. Consequently, a reading of 49.9 and below denotes pessimism and a possible contraction in the manufacturing sector.
Here’s how manufacturing PMI readings turned out for most major economies in the past few months:
As you can see, Canada’s manufacturing sector seems to have fared the worst in the past three months while the euro zone is also seeing a slowdown. Japan has marked a steady improvement in the industry despite the recent sales tax hike while China is also chalking up a recovery.
Meanwhile, the U.K.’s manufacturing sector is a cut above the rest as it has consistently shown strong expansion since April. Manufacturing conditions in the U.S. also appear to be stable.
With developments in the manufacturing sector playing a key role in supporting overall economic activity, it’s no surprise that central bank officials take these PMI into consideration when making policy decisions. Do you think these manufacturing readings are an omen of future price action?