The world manufacturing economy is far from a convincing expansion, but the collective reports from purchasing managers in 26 countries say that in most markets, business has stopped contracting. For the group as a whole, prices and employment are still falling, although at smaller rates, but output and new orders, a leading indicator are rising, and reached their highest global levels in 18 and 20 months, respectively.
The smile I'm referring to in the headline is just a metaphor -- I imagine purchasing managers the world over are sweating bullets, like everyone else. But consider this chart from the Financial Times, which plots the Manufacturing Purchasing Manager Indices (PMIs) for the world's major markets. It has the shape of a smile, doesn't it?
Also note in the graph that China and India are well above 50, and that the U.K. has moved into expansion territory with the July report. The U.S., Japan and the U.K. saw production rise at the fastest rates for 25, 34 and 19 months, respectively.
The overall PMI for the U.S., at 48.9 for July, is still below 50, which means managers think business is contracting. But it's up from June, and four of its eleven components were positive for the month, including the crucial new orders and production measures.
Six U.S. industries reported growth: Nonmetallic Mineral Products; Paper Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Transportation Equipment; and Chemical Products.
Here is the take of Norbert J. Ore, who heads the survey efforts of the U.S. Institute for Supply Management:
Overall, it would be difficult to convince many manufacturers that we are on the brink of recovery, but the data suggests that we will see growth in the third quarter if the trends continue.Economists are not convinced, either, and fear that the progress may reflect only replenishing inventory, even though the new orders-to-inventory ratio reached a record high in July. In the U.S, however, inventories have been contracting for over three years, and the drop in inventories contributed negative 0.8 percent to 2Q 2009 GDP's one percent decline, and over two percent to the six percent decline a quarter earlier.
We'll know in a few more months.