The global manufacturing sector is back

Photo: Christopher Furlong/Getty Images (File)

Add this to your list of evidence that the global economy is looking good at the start of 2017.

Global manufacturers just had their best month in nearly six years.

The JP Morgan-IHS Markit Global Manufacturing Purchasing Managers Index (PMI) rose by a further 0.2 points to 52.9 in February, the highest level reported in 69 months.

The PMI measures changes in activity levels across the global manufacturing sector from one month to the next, and ranges from a score of 0 to 100. 50 is deemed neutral, with anything above this level indicating that activity levels improved. A reading below 50 suggests activity levels declined.

The distance from 50 indicates how quickly activity levels improved or declined compared to a month earlier.

That means that in February, not only did activity levels improve, they did so at a faster pace.

Source: IHS Markit

That’s good news for the broader global economy, particularly as this index has now been in expansionary territory for the past 12 months. The improvement is being sustained and is strengthening.

The survey takes responses from over 12,000 firms in over 40 countries each month, and accounts for an estimated 95% of global manufacturing output — so it’s about as comprehensive report on the performance of the sector as one can get

“National data suggested that developed nations tended to fare better than emerging markets during February,” said IHS Markit.

“PMI levels edged higher in the euro area (70-month high) and Japan (35-month high) to offset mild decelerations in the rates of expansion in the US and the UK.

“Although the rate of improvement across emerging markets remained weaker than that for developed nations, it was nonetheless slightly faster than in January. This stronger upturn mainly reflected growth accelerations in China, India, Vietnam and the Czech Republic.”

And, mirroring the broad-based improvement from both developed and emerging markets, the internal subindices in the report were also strong.

This table from IHS Markit underpins that view.

Source: IHS Markit

The group said that employment increased for the sixth successive month in February, expanding at the fastest pace in more than five years, helped in part by an increase in order backlogs that rose for a ninth consecutive month.

That was reflective of strengthening demand with the new export orders gauge rising to highest point in almost six years.

Understandably, that saw sentiment among manufacturers improve sharply once again.

Compared to previous years, there’s almost no negatives in the February report, and explains why commodity prices and other cyclical assets have continued to perform strongly in recent months.

It also goes someway to explaining why the US Federal Reserve is now sounding considerably more confident about raising interest rates in less than two week’s time.

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