Manufacturing recovery continues
Resource Hotspot 253
Many global economies are close to turning points, with investors closely monitoring a wide range of leading indicator data. In terms of industrial activity, and hence expected demand for commodities, perhaps the most relevant data comes from the monthly Purchasing Managers’ Indices (PMIs).
The latest data was released earlier this week and shows a continuation of an improving trend across all the major economic zones – albeit with only China above the critical 50 percent level that indicates that the manufacturing economy is generally expanding. The key trends for the headline PMIs by region are outlined in the following table and chart:
| Headline PMI by Area |
US | Eurozone | Japan | China |
|---|---|---|---|---|
| Jan-08 | 50.7 | 52.8 | 52.3 | 53.2 |
| Feb-08 | 48.3 | 52.3 | 50.8 | 52.8 |
| Mar-08 | 48.6 | 52.0 | 49.5 | 54.4 |
| Apr-08 | 48.6 | 50.7 | 48.6 | 55.4 |
| May-08 | 49.6 | 50.6 | 47.7 | 54.7 |
| Jun-08 | 50.2 | 49.2 | 46.5 | 53.3 |
| Jul-08 | 49.5 | 47.4 | 47.0 | 53.3 |
| Aug-08 | 49.3 | 47.6 | 46.9 | 49.2 |
| Sep-08 | 43.4 | 45.0 | 44.3 | 47.7 |
| Oct-08 | 38.7 | 41.1 | 42.2 | 45.2 |
| Nov-08 | 36.6 | 35.6 | 36.7 | 38.8 |
| Dec-08 | 32.9 | 33.9 | 30.8 | 41.2 |
| Jan-09 | 35.6 | 34.4 | 29.6 | 45.3 |
| Feb-09 | 35.8 | 33.5 | 31.6 | 49.0 |
| Mar-09 | 36.3 | 33.9 | 33.8 | 52.4 |
| Apr-09 | 40.1 | 36.8 | 41.4 | 53.5 |
| May-09 | 42.8 | 40.7 | 46.6 | 53.1 |
| Jun-09 | 44.8 | 42.6 | 48.2 | 53.2 |
Source: ISM, Reuters
In the U.S. the Institute for Supply Management (ISM) highlighted that economic activity in the manufacturing sector failed to grow in June for the 17th consecutive month, with the PMI registering 44.8 percent (2 points higher than May).
However, a breakdown of the data showed some promising trends. Commenting on the survey, the ISM stated “Manufacturing continues to contract at a slower rate, but the trends in the indexes are encouraging as seven of 18 industries reported growth in June. Most encouraging is the gain in the Production Index, which is up 12.1 percentage points in the last two months to 52.5 percent. Aggressive inventory reduction continues and indications are that the de-stocking cycle is at or near the end in most industries, as the Customers’ Inventories Index remained below 50 percent for the third consecutive month. The Prices Index was unchanged from May, indicating that the supply/demand balance is improving. Overall, a slow recovery for manufacturing is forming based on the current trends in the ISM data.”
The key Chinese PMI (the only region showing meaningful growth) rose marginally to 53.2 during June, consolidating a trend that has been in place throughout 2009. Importantly, all the main indicators came in above 50, suggesting further manufacturing growth during the month.
In the Eurozone and Japan (as with the US) there is growing evidence that the destocking phase across the manufacturing sector is drawing to a close. This should mean that market demand will now move back in line with underlying consumption – providing the likelihood of increased consumption of metals over the coming months. The improvement in Japan throughout 2009 has been particularly strong (from a low base).
