Is a Slower Decrease a “Green Shoot”? May Purchasing Manager Surveys

(MoneyWatch)  Economies that are in outright recovery mode are still pretty scarce: the June 1 release of the JPMorgan Global Manufacturing Purchasing Manager Index (Global PMI) reports that manufacturing is on the rise in only three -- the emerging markets of China, India, and Turkey. Everywhere else production is still falling, and although manufacturers in the U.S., Europe and Japan are still faring poorly, the rates of decrease are slowing. But the global index was higher than it's been for nine months, so even that lukewarm report was enough to spur the stock markets to big gains Monday, including a 2.6 percent jump in the S&P 500.

Here's a graph of the Global PMI, showing the bounce in May and June. It measures trends in new orders, production, employment and prices. The index has risen, but the level is still under 50, which means things are still contracting -- just not as fast. (See the note at the end of this post for an explanation of the Global PMI.)


In China, which accounts for about five percent of world GDP, production and new business both expanded for the second month, although growth was limited to domestic new orders.

Indian production also for the second straight month, and like China, new demand came from the domestic market. In response, manufacturers started building inventory again, and new workers were hired for the first time since October 2008. India contributes about two percent to global GDP.

Turkey, less than half the size of India, saw manufacturing production rise for the first time in 17 months, and new orders showed their first gain since December 2007. Employment declined, however, and prices were weak.
But for the U.S., Eurozone and Japan, which together constitute over 60 percent of global GDP, the best reports are still just lesser negatives, and slowing rates of decline. Europe is not doing well, reports Markit, co-publisher of the Global PMI:

The PMI extended its run below the no change mark of 50.0 into a twelfth successive month, a sequence unprecedented in the series history. It also remained at an historically low level. National PMIs stayed firmly in recession territory across all of the member states covered by the survey.

As for Japan, production and new orders fell for the fifteenth month, and prices continued a six-month decline.

Last, and perhaps least, conditions in the U.S. manufacturing sector contracted for a sixteenth month. Employment and inventories both fell in May. However, new orders rose in nine industries, and in spite of deterioration in nine others, rose for U.S. manufacturers overall.
I call this report mixed, but considering the unanimous strong reception by world stock markets Monday, maybe I am being too negative. U.S. and U.K consumers have dialed back their purchases, but spending has been more steady in continental Europe, and as mentioned above, demand is intact in China and India. I suppose slowing down is the first step to turning around.

A note on the Global Purchasing Manager Index
Recently the work of Markit Group, a firm that gathers and interprets all sorts of thorough and thoughtful economic and financial data, came to my attention. The Global PMI, which Markit publishes jointly with JPMorgan, includes manufacturing data on output, orders, employment and pricing from 26 countries, and covers over 80 percent of world manufacturing activity.

The Global PMI is different from most indexes. Rather than reporting a level of prices or volume, it is calculated as a "diffusion index," where participants are asked only whether conditions are getting better, worse or are the same; that is, they are not asked to report percentage increases or decreases. The answers aren't weighted by the size of the company giving the answer, just the direction. A diffusion index value over 50 indicates an increase in activity across the survey group from the preceding month, while under 50 shows a decrease, and the distance from 50 indicates how fast things are rising or falling.