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By HaleStewart January 4, 2014 9:01 am
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International Week In Review: All Hail Manufacturing

Last week was another holiday shortened week with very little news released on either Tuesday or Wednesday.  By far the biggest news was the monthly Markit manufacturing releases for the EU and the UK.  Here is the key information from the EU release:

The recovery in the eurozone manufacturing sector accelerated further at the end of 2013. The seasonally adjusted Markit Eurozone Manufacturing PMI® rose for the third month running to post 52.7 in December, up from 51.6 in November (and unchanged from the earlier flash estimate).

The headline PMI has now signalled expansion throughout the second half of the year. For the final quarter as a whole, the sector is recording its best performance in two-and-a-half years, consistent with a quarterly pace of output growth of around 0.6%.

The accompanying graph adds more detail:

As noted above, all countries are above reading of 50 which denotexpansion, save for France and Greece.

The UK report was equally strong.  It noted:

The UK manufacturing sector ended 2013 on a positive footing. December saw rates of expansion in production and new orders both remain among the highest in the 22-year survey history, leading to a pace of job creation close to November’s two-and-a-half year record. Companies benefited from strengthening domestic market conditions and a solid bounce in incoming new export orders.

The seasonally adjusted Markit/CIPS Purchasing Manager’s Index® (PMI®) posted 57.3 in December, down slightly from November’s 33-month high of 58.1, but still a level indicative of a robust improvement in overall operating conditions. Moreover, the average PMI reading for the final quarter as a whole (57.2) was the highest since Q1 2011.

This report adds further fuel to a UK economy that is (finally) coming out of recession. 

The ISM released the US version of its report this week as well. While the reading of 57 was the second highest of the year, it’s the report’s anecdotal notes that are most important.  Consider the following:

  • Amazingly enough, we are seeing meaningful increases in our sales in nearly all segments and regions." (Apparel, Leather & Allied Products)
  • "Largest backlog ever. Most orders waiting on customer approvals." (Fabricated Metal Products)
  • "Orders and price continue to be strong." (Paper Products)
  • Continued government spending constraints keeping production volumes low." (Transportation Equipment)
  • “Good overall business conditions nationally and internationally." (Computer & Electronic Products)
  • "Markets are sound. We typically see a seasonal 4th quarter slowdown. However, this year … not so." (Wood Products)
  • "Very, very busy." (Furniture & Related Products)
  • "Sales are strong going into the holiday season." (Food, Beverage & Tobacco Products)
  • "Construction equipment market continues to be flat with some signs of improvement on the horizon." (Machinery)
  • "Business conditions remain stable to slightly improving." (Miscellaneous Manufacturing)

The vast majority of the reports are strong, save for two.  These snippets are included to highlight common statements heard in the answers to report questions.

Finally on the manufacturing side is the Chinese report, which printed a bit above 50. However, this indicators latest readings have been a bit disappointing, as shown in the accompanying graph:


Notice that over the last 6 months, the index has printed right above expansion.  However, while these readings are positive, they aren’t the typical gangbusters numbers we’re used to seeing come out of China.

All of these reports tie into industrial production statistics, which is one of four commonly used coincident economic indicators.  In order of importance, the US numbers stand out as the best, as they add further credence to the argument that the US is now ready to move into a higher period of growth.  The UK number is the second best for reasons stated above.  The EU readings are obviously positive as most economies are printing expansionary readings.  But also note the second largest EU country (France) is showing contractionary readings while other countries such as Italy and Spain are just coming out of extreme recessions, meaning they have other very large economic problems to deal with (starting with incredibly high unemployment). 

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer


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