Purchasing Manager Index (PMI) data though still positive in many countries contains some disturbing trends despite headline numbers in many cases north of the magic “fifty threshold. Last month, 14 of 18 industries reported growth for the month of May. In June, that number dropped to 12 of 18 industries reporting growth. And now primary metals have reported contraction.
The good news after May’s steep PMI headline drop from 60.4 to 53.5, June saw a nudge up to 55.3, safely over the 50 percent growth mark. Last month we had the greatest concerns over production and order backlog. Production nudged up slightly from 54.0 to 54.5. Order backlog continued to disappoint moving from 50.5 to 49, representing the first month of a “contracting indicator. On the positive side, inventories grew from 48.7 to 54.1.
Also, and quite tellingly, the rate of price increases seemed to slow for the second month in a row, “Â¦dropping 8.5 percentage points in June to 68 percent. This follows a similar reduction of 9 percentage points in the Prices Index in May, and is the lowest figure since August 2010 when the index registered 61.5 percent. Price growth, or inflation, often creates the impetus for a tighter monetary policy. And as we recently heard at the Harbor Aluminum Conference, according to Michael Lewis, Head of Commodities Research at Deutsche Bank, “the economy goes into recession 72 months after the Fed raises interest rates. (Ed note: we haven’t examined the veracity of this claim).
Tightening Monetary Policy Around the Globe
Last week Reuters in a piece on the global market, discussed rising interest rates appear to have slowed the manufacturing growth engine. The article points to both weaker consumer demand as well as monetary belt tightening. Though the Markit Eurozone Manufacturing Purchasing Managers’ Index fell to 52.0, it appears comparable to last month’s US PMI data. More disturbingly though, France and Germany have carried European growth while Italy, Spain and Ireland all contracted and the UK posted its slowest growth numbers in the past two years. The article also points to a more sluggish China (PMI at 50.9), India (a drop in PMI to 55.3), South Korea hitting a 7-month low along with Taiwan falling below 50.