PMI Results for December Point to Encouraging Global Rebound

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Across the world, the combined scores of national purchasing managers’ indices, compiled by JP Morgan, rose to 55 in December from 53.6 in November, the highest since April 2006, with the index for new orders at a 5½ year high.  Manufacturers’ intentions on employment also rose above 50 for the first time since March 2008, signaling that manufacturing is intending to hire again as demand picks up according to an FT report. The strength of Asia’s recovery was underlined by a continued improvement in sentiment in China and India, and steady improvements in South Korea and Taiwan. Brighter prospects were also recorded in the US, UK and Europe. The US Institute of Supply Management manufacturing report stood at 55.9 in December and even the UK, where official data is yet to show a recovery, surprised analysts by rising from 51.8 in November to 54.1 in December. The strong rebound has been put down to a number of factors but re-stocking in the manufacturing supply chain is believed to be a large part of it.

But not all of the economic news was rosy. A Commerce Department report said construction spending declined 0.6% in November, as construction of housing and commercial buildings continued to fall. The Washington Post reported a home-building industry that has been slow to get back on its feet despite stabilization in home sales numbers and depletion of excess inventories. The commercial real estate sector continues having troubles of its own. While construction spending was down just 0.2% for the month, the paper reports many forecasters expect such spending to decline more sharply in the future, as builders are unable to gain financing for new construction. Finally, there is a glut of commercial buildings which could last throughout 2010.

Reports are mixed as to where the growth is coming from, some saying automotive is contributing to the rise, others saying automotive orders fell in December, along with sharp falls in aerospace. Certainly the restocking seen in car showrooms after the end of the cash for clunkers program must now be coming to an end. Industrial machinery, leather apparel, petroleum and electronics appear to be doing well. New orders are running ahead of inventory stocking powering GDP to an estimated 4% growth in the fourth quarter according to this FT article. Optimistically, Alan Ruskin a strategist at RBS Securities is quoted as saying, “the gap between inventories and orders remains remarkable, and is a good leading indicator, pointing to a further pick-up in production in the next few months,  – let’s hope he is right.

–Stuart Burns

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