Global Manufacturing



On the first business day of each month, manufacturing purchasing managers indexes (M-PMIs) are released for the US and several other countries. When the global economy is growing, they tend to exceed 50 and to be bullish for stocks. On Friday, we learned that the M-PMI for the US dipped from 54.8 in April to 53.5 in May. That’s not too bad, really. China's index dropped from 53.3 to 50.4. It’s still above 50, but disappointing relative to expectations. The unexpected jaw dropper was the index for the UK, which plunged from 50.2 to 45.9.

The euro area’s M-PMI sank even lower, from 45.9 to 45.1. That wasn’t unexpected, but it confirmed that the region has fallen into a recession that is worsening. The M-PMIs were well under 50 for Spain (42.0), France (44.7), Italy (44.8), and Germany (45.2). Germany’s index has dropped sharply recently from a reading just above 50 during February.

Manufacturing has been the leading source of growth during the latest global economic recovery, including in the US. The concern is that neither the US nor China can continue to grow for very long if the European recession continues to deepen. I think they can. However, there has always been a very strong correlation among the various M-PMIs over the business cycle. So it’s not surprising that the stock market’s reaction on Friday suggests that investors are skeptical and questioning whether the M-PMIs can decouple.

Today's Morning Briefing: Checklist for Optimists. (1) Cold and drizzling in Boston. (2) Looking at clouds from both sides now. (3) A torrent of disappointing M-PMIs. (4) Global Growth Barometer is also dreary. (5) A checklist of happy outcomes. (6) Unions vs. taxpayers. (7) European banking integration or bust? (8) Giving a pass to Greece and Spain. (9) Lower oil prices. (10) Higher German wages. (11) The Chinese and Brazilians are stimulating. (More for subscribers.)