Sunday, August 7, 2011

Super PMIs

When the monthly manufacturing and non-manufacturing purchasing managers indexes (M-PMIs and NM-PMIs) are released, we average them together for the US, the UK, and the EU. These series have the most history going back to the late 1990s.

The Super M-PMI fell every month since its most recent cyclical peak of 60.6 during February. It was down to 50.1 during July. That may be a harbinger of a global manufacturing recession. More likely is that it is a soft patch mainly attributable to the disruptions caused to global manufacturing by the shortage of Japanese parts following the March 11 earthquake. There was a mid-cycle slowdown during 2005, when the Super M-PMI dropped to a low of 48.7. It then recovered and remained above 50.0 during the final months of 2005 through early 2008. The Super NM-PMI remained relatively strong at 53.2 during July, though that was down from a recent peak of 57.2 during March.

The Super-Duper PMI, which averages the Super M-PMI and the Super NM-PMI, fell to 51.7 in July. That is down sharply from the most recent cyclical high of 58.5 during February, and the lowest reading since September 2009. But it is still north of 50.0. The July level matches the low during the 2005 mid-cycle slowdown. The next couple of months will determine whether the soft patch is turning into a mud pit or into a hard patch. We remain in the soft-patch camp. We think that the recent weakness is a mid-cycle slowdown. It is possible that the soft patch was extended by all the crazy political turmoil in Europe and in the United States during July. The resulting crisis of confidence, which was reflected in last week’s market plunge, might have prolonged the slowdown. The downgrade of US government debt by S&P may also prolong the soft patch.

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