The latest batch of PMI reports bodes well for the global economy in early 2018


  • The latest batch of global manufacturing and services PMI reports suggest the global economy continued to strengthen in November, led by the manufacturing sector.
  • New orders are growing at at the fastest pace in over three years, a good sign that activity levels will remain strong in early 2018.
  • The recovery is being led by Europe, although activity levels continue to improve in most major economies, including the US and China.
  • It’s early December, and the latest batch of manufacturing and services Purchasing Managers Indices (PMIs) for November are in.

    The news for the global economy was nothing but good with activity levels improving at the equal-fastest pace in two-and-a-half years, led by a strong performance from the manufacturing sector.

    The JP Morgan-IHS Markit All-Industry Output PMI — a measure of activity levels across the global manufacturing and services sectors — came in at 54.0, a result that suggests the global economy continued to strengthen in November, continuing the trend seen in the 61 months beforehand.

    This PMI measure changes in perceived activity levels from one month to the next, surveying over 18,000 firms from 40 countries which account for an estimated 89% of global gross domestic product (GDP) — so it’s a very thorough gauge on what’s happening in the global economy.

    Anything above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating, with the distance away from 50 indicating how quickly activity levels are expanding or contracting.

    So at 54.0, the November result was strong, especially for the global manufacturing sector whose composite PMI rose 0.5 points to 54.0, leaving it at the highest level since early 2011.

    Source: IHS Markit

    As David Hensley, Director of Global Economic Coordination at JP Morgan explains, that helped to offset a slight deceleration in the global services sector whose composite PMI fell to 53.7, down from 54.1 in October.

    “November saw the global economy maintain a robust and steady rate of output expansion, as a solid upswing in growth of manufacturing production offset a slightly weaker upturn in service sector activity,” says Hensley.

    “The outlook for global growth also remains positive, as manufacturing looks set to sustain its recent bounce and rising order intakes boost service providers.”

    According to the report, new orders rose at the strongest pace since September 2014 and backlogs of work increasing to the greatest extent in four years, two outcomes that again suggest global demand is strengthening.

    As a lead indicator, the new orders subindex, at 54.7, is particularly pleasing, pointing to the likelihood that activity levels will continue to improve as we enter early 2018.

    That result fits with separate readings on employment growth and price pressures which also continued to build in November, as seen in the table below. Like the headline PMI, a reading above 50 indicates an improvement from one month earlier.

    Source: IHS Markit

    Adding to optimism, the recovery across both sectors is also broad-based, differentiating it from episodes in the past where strength in one particular nation or region came at the expense of weakness in others.

    Underlining that point, IHS Markit said the recovery is continuing to be led by Europe, a serial underachiever of recent years.

    “National PMI data indicated that the euro area remained a prime growth engine for the global economy in November,” the group said.

    “Output across the eurozone expanded at the quickest pace in over six-and-a-half years, with accelerations seen across each of the currency union’s ‘big-four’ economies of Germany, France, Italy and Spain.”

    Elsewhere activity levels also improved in China, Russia and Australia, but slowed in the US, UK, Japan and India.

    A strong result if there ever was one, and one that should continue to provide support to riskier assets as long as the current trends continue.

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