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The manufacturing PMIs for March indicate that the pace of the robust global manufacturing sector has moderated. My GDP-weighted PMI for the major economies fell to 56.0 from 58.2 in February.

The pace of expansion in the U.S. eased slightly to a still robust 61.2 in March from 61.4 in February. The pace in the Eurozone also eased to 57.5 from 59.0 in February and easing was widespread. Greece, on the other hand, has seen a moderation of the contraction in its manufacturing sector. The U.K.’s manufacturing sector moderated relatively sharply from a robust 61.5 to 57.1.

As expected, the expansion in Japan’s manufacturing sector was halted as the impact of the terrible disaster is being felt. After registering its second consecutive month of expansion in February, the manufacturing PMI dropped from 52.9 to 46.4. The huge turnaround in Australia’s manufacturing sector in February came to an abrupt end in March with the PMI falling to 47.9 from 51.1. China’s manufacturing PMI rebounded from 52.2 in February to 53.4 in March, mainly due to seasonal factors. Taiwan failed to follow mainland China, though. The manufacturing sectors in emerging economies generally followed the weaker trend with South Africa (RSA), Russia and India the exceptions.

Click on charts below to enlarge:

Sources: Markit; Li & Fung; Kagiso; ISM; Plexus Asset Management.

Manufacturing PMI

Trend

Country

Mar-11

Feb-11

US*****

61.2

61.4

Robust

Eurozone*

57.5

59.0

Expansion moderating, robust

Germany*

60.9

62.7

Expansion moderating, robust

France*

55.4

55.7

Expansion moderating

Greece*

45.4

42.8

Contraction eased

Italy*

56.2

59.0

Expansion moderated, robust

Spain*

51.6

52.1

Expansion moderated

Ireland*

55.7

56.7

Expansion moderated, robust

U.K.*

57.1

61.5

Expansion moderated, robust

Japan*

46.4

52.9

Contracting

Australia*

47.9

51.1

Contracting again

Emerging Economies

Brazil*

53.2

54.6

Expansion moderated

China**

53.4

52.2

Seasonal expansion, below trend

Czech*

58.6

59.8

Expansion moderated, robust

Poland*

54.8

53.8

Expansion accelerated

Turkey*

56.1

58.5

Expansion moderated, robust

India*

57.9

57.9

Robust

Russia*

55.6

55.2

Expansion accelerated, robust

Taiwan*

55.6

55.8

Expansion moderated, robust

RSA***

57.2

54.8

Expansion accelerated

S Korea

52.8

53.4

Expansion decelerated somewhat

Global****

56.0

58.2

Expansion accelerated, robust

Sources: Markit*; Li & Fung**; Kagiso***; Plexus Asset Management****; ISM*****.

Sources: Markit*; Li & Fung**; Plexus Asset Management****; ISM*****.

Where the still relatively robust global manufacturing PMI numbers were likely to lead to improved global industrial production growth through the end of June, this year a hiccup is facing global industrial production in the coming months, especially in light of the tragic events in Japan.

Sources: Markit*; Li & Fung**; Plexus Asset Management****; ISM*****; I-Net Bridge

The immediate outlook for industrial metal prices is therefore cloudy.

Sources: Markit*; Li & Fung**; Plexus Asset Management****; ISM*****; I-Net Bridge.

Non-manufacturing/Services PMIs

The JPMorgan Global Services PMI for March got hammered as it dropped to 54.0 from a robust 59.3 in February.

The ISM non-manufacturing sector in the U.S. eased from a very robust 59.7 in February to 57.3 in March. In the Eurozone, the robust services sectors of France and Germany upped the pace again, but elsewhere in the Eurozone the PMIs came in mixed. Spain again fell back into contraction while growth in Ireland’s services sector moderated sharply, finding itself on the brink of contraction.

March was characterised by a significant rebound of the U.K. services sector as the PMI rose to 57.1 from 52.6 in February. Japan’s services sector took a huge smack as the PMI dropped from 49.8 to 35.3 on the back of the disaster. The contraction in Australia’s services sector again deepened with the PMI falling to 46.5 from 48.7 in February.

In the emerging economies the robust expansion in India’s services sector has moderated slightly. China’s non-manufacturing PMI surged to 60.2 from 44.1 in February – in line with the seasonal pattern.

Sources: CFLP; Plexus Asset Management.

The rate of expansion in Russia’s services sector has steadied while the expansion in Brazil’s has accelerated.

Sources: Markit; CFLP; ISM; Plexus Asset Management.
*Japan is off the screen due to the disaster’s impact on the numbers.

Non-manufacturing/ Services PMI

TREND

Country

Mar-11

Feb-11

US

57.3

59.7

Expansion moderating, robust

Eurozone

57.2

56.8

Expansion accelerating, robust

Germany

60.1

58.6

Robust pace accelerated

France

60.4

59.7

Robust pace accelerated

Italy

53.3

53.1

Expansion accelerated slightly

Spain

48.7

50.8

Contracting again

Ireland

51.1

55.1

Expansion slowed significantly

UK

57.1

52.6

Expansion accelerated sharply

Japan

35.3

49.8

Severe contraction

Australia

46.5

48.7

Contraction accelerated

Emerging Economies

Brazil

53.5

52.7

Expanding faster

China*

60.2

44.1

Seasonal acceleration

India

60.0

61.0

Robust

Russia

53.3

53.4

Expansion moderated slightly

JPMorgan Global Services

54.0

59.3

Pace of expansion decelerating

Sources: *Markit; **CFLP, Li & Fung, Plexus; ***ISM, Plexus; ****Markit, Plexus Asset Management.

GDP-weighted/Composite PMIs

On a GDP-weighted/composite basis, where the manufacturing and non-manufacturing/services are both taken into account, the growth in global economic activity decelerated sharply in March. This took the JPMorgan Global Composite PMI index from a robust 59.4 in February to 54.7. That compares to 58.3 in January and 57.1 in December last year.

GDP-weighted/ Composite PMI

TREND

Country

Mar-11

Feb-11

US***

58.4

60.1

Expansion moderating, robust

Eurozone****

57.3

57.4

Expansion moderating, robust

Germany*

60.4

60.9

Robust

France*

59.1

59.0

Robust

UK****

57.1

55.1

Expansion accelerated, robust

Japan*

36.1

51.0

Contracted severely

Emerging Economies

China**

57.5

47.3

Seasonal acceleration

India*

60.0

61.0

Expansion moderating, robust

Russia*

55.1

55.2

Expansion moderated slightly

Hong Kong*

54.9

53.7

Expansion accelerated

UAE*

54.7

54.3

Expansion accelerated

JPMorgan Global Composite*

54.7

59.4

Expansion moderated

Sources: *Markit; **CFLP, Li & Fung, Plexus; ***ISM, Plexus; ****Markit, Plexus Asset Management.

Sources: Markit; Li & Fung; ISM; Plexus Asset Management.
*Japan is off the screen due to the disaster’s impact on the numbers.

Summary

US economy: GDP-growth accelerating

My GDP-weighted ISM PMI for the U.S. leads U.S. real GDP growth by a quarter. At this stage, it continues to indicate first-quarter GDP growth in excess of 3% on a year-ago basis and may even touch 3.5%. If the current robust manufacturing and non-manufacturing PMIs hold up through the end of June, the year-on-year GDP growth could reach 4% and beyond in the second quarter. That is, barring any fallout from the Japanese disaster.

Sources: ISM; FRED; Plexus Asset Management.

Eurozone: GDP growth to gain momentum in Q2

The PMIs during the fourth quarter of 2010 indicates that GDP growth in the first quarter is likely to come in at approximately 2.5% compared to a year ago. And, barring any fallout from the Japanese disaster, should accelerate to 3% in the second quarter.

Sources: Markit (various internet sources); I-Net; Plexus Asset Management.

China: Still going strong!

As I expected, my calculated GDP-weighted PMI for China spiked in February, due to the reversal of the seasonal weakness induced by the Chinese Golden Week. The non-manufacturing PMI for March surprised me on the upside, though. Where I thought that the somewhat weaker trends in January and February were indications that the stricter monetary policies pursued over the past 12 months have started to bite, it seems to me that the PBoC needs to do more to slow the economy.

Sources: CFLP; Plexus Asset Management.

From a forecasting point of view the CFLP manufacturing PMI gives a better picture of underlying GDP growth due to lower seasonality. China’s year-on-year GDP growth of 9.8% in the last quarter of 2010 was in line with my estimate of 10% based on the manufacturing PMI’s trend in that quarter. It is evident to me that China’s year-on-year GDP growth in the first quarter is likely to come in at approximately 10%.

Sources: Dismal Scientist; Li & Fung; Plexus Asset Management.

Japanese economy: To get worse before recovering?

How the Japanese economy will perform over the next few quarters as a result of the disaster is virtually impossible to say. We will have to take our lead from the trend in the manufacturing and services PMIs. In the following graph I have assumed that the manufacturing PMIs for the next three months will come in as follows (March was 46.4): April 40; May 45; and June 50. In this scenario it seems to me that GDP growth in the first quarter will register approximately -1% on a quarter-on-quarter annualised basis. In the second quarter the GDP is likely to shrink by 2% to 3% on the same basis.

Sources: Dismal Scientist; Markit; Plexus Asset Management.

U.K. economy: Continuing to gain traction…

From my reading of the GDP-weighted PMI the U.K. grew by approximately 2.0% in the first quarter on a year-on-year basis compared to 1.6% in the fourth quarter of 2010. It is evident that growth in the second quarter will accelerate to approximately 2.5% to 3.0%, barring any fallout from the Japanese disaster.

Sources: Markit; Dismal Scientist; Plexus Asset Management.

Conclusion

While both global manufacturing and non-manufacturing/services PMI numbers continue to be relatively strong, the onset of a declining trend is something to watch closely. The population of black swans in the global pond has now been expanded by the terrible natural disaster in Japan. The geo-political situation in the Middle East and North Africa is not improving, lending support to higher oil prices and increasing price pressures in the global economy. The PBoC has again tightened its monetary policy. The potential contagion of the debt crisis in the Eurozone and the impact of austerity measures on the Eurozone economy are still major uncertainties. These black swans and how they will unfold are likely to influence and prescribe the policies of central bankers globally.

Disclosure: None

Source: Global PMI: Growth Still Strong but Moderating