The global manufacturing index, put together by JPMorgan, hit a new cyclical high in March which we discussed here.
This is great news for the global economy as it represents rapidly expanding manufacturing activity.
Thing is, Goldman Sachs’ wonders whether the rebound could lose some steam going forward, given that much of the recent momentum was driven by companies rebuilding their inventories from what turned out to be overly cautious levels.
Goldman (Global Markets Daily, April 6th, 2010):
Meanwhile, the momentum in the advanced economies was very strong in March as PMIs generally surprised on the upside. However, production in the advanced economies has been playing catch-up with the inventory cycle, as we continue to point out. This driver is temporary, and as mentioned above, the underlying data show that this cycle is coming closer to an end. The jump up in PMIs this month coincided with a large jump up in inventory indices, particularly in the US. As the inventory pendulum begins to swing the other way, industrial momentum may begin to slow.
Our Global Leading Indicator (GLI), released last weak, also confirms this story. While the headline measure improved, pointing to a solid industrial picture, the components generally show that momentum has been slowing. The PMIs are telling us a similar story.
Note that America’s huge Q4 GDP growth was heavily influenced by an U.S.-wide inventory re-stock from overly defensive levels. Thus the global growth slow-down Goldman forecasts will parallel that expected of the U.S..
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