Forex Snapshot: Manufacturing PMI

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:

Manufacturing PMI TableNot a fan of the table format? Here’s a line graph that might help you make better comparisons among the major economies:

manufacturing PMI graph

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?

  • ForExchange

    Hi Forex Gump.

    This time it was hard to choose from your pool of answers as for me “the right one” was not there 🙂 I think it PMI is an important factor but because of the sanctions on Russia, the three major European currencies will decrease in value no matter what their PMI shows. The economy will hurt, because the trade volume goes down between European countries and Russia which is not good for the economy. It takes though some time until the PMI will show these effects in the reports, maybe some months later. So outside Europe I take it important, but in Europe not.

    What is your opinion on that? Can you share it?

    • Ha! I did have a tough time trying to put in as many choices that might include a wide range of opinions on this particular one, and I do agree that manufacturing PMI does have a varying level of impact depending on the economy. Interesting how you tied it up with the geopolitical tension weighing on currencies these days, particularly the sanctions on Russia. For now, I think the PMIs in the euro zone can affect short-term price action but the longer-term trend in the data can be weighed on by trade sanctions and we’ll see this in other economic figures as well.