A quick look at a timely topic of interest – with a brief review of why it could matter to investors.

Chart of the Week
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June 16, 2014

Manufacturing progress: some more than others
PMIs for manufacturing for May, 2014 vs 2013

chart

Source: Barclays, as of 6/10/14. Note: PMI above 50 indicates expansion; PMI below 50 indicates contraction. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The Bottom Line:

  • Global manufacturing activity expanded for the 18th consecutive month in May, a good sign for continued global economic growth.
  • But business cycles are rarely the same everywhere, and that certainly holds true today.
  • Of the 24 markets shown above, 15 saw their manufacturing sectors expand or stay even in May 2014, while 9 fell below 50, signifying contraction.
  • The United States and the United Kingdom continue to stand out as leading drivers of global growth, with PMIs of 56.4 and 57 respectively.
  • Manufacturing in the Eurozone has now expanded for 11 consecutive months following 23 consecutive months of contraction.
  • Japan's manufacturing PMI has been just below 50 for two straight months, following 13 consecutive months of expansion (Source: Barclays).
  • Developed market expansion could help bolster emerging market manufacturing activity that is otherwise still generally sluggish.
  • That said, three of the largest emerging markets -- Brazil, Russia and China – are seeing contraction, pressuring overall growth in emerging markets and global growth in general.

The Chart:

  • The chart shows the May 2014 (columns) and May 2013 (triangles) levels of manufacturing PMIs from 23 countries and the Eurozone. These geographies comprise more than 85% of global GDP, according to the most recent edition of the CIA World Factbook.
  • Purchasing Managers Indexes (PMIs) are designed to measure economic sectors in a country or region; PMIs are in turn subdivided into manufacturing and services sectors. PMIs are based on survey data collected from representative panels of manufacturing and services firms. A PMI greater than 50% indicates expansion; below 50%, contraction.
  • The manufacturing sectors in 14 countries and the Eurozone expanded in May 2014, while manufacturing expanded in 15 countries and the Eurozone a year ago.
  • But it's important to note the overall improvements during that year; the manufacturing sectors of 15 countries and the Eurozone expanded more quickly or contracted more slowly in May 2014 than in May 2013.

Context & Perspective:

  • The JPMorgan Global Manufacturing PMI was 52.2 in May 2014, up from 51.9 in April, but below the high of 53.2 reached in February.
  • Specifically, the manufacturing sectors of 15 of the 24 areas shown above expanded or stayed even in May 2014, while 9 showed contraction; that's quite different than the previous year, when 5 of the 15 growers contracted, while 6 of the 9 decliners expanded.
  • These shifts illustrate the myriad factors that can impact manufacturing activity, from macro issues like interest rates, central bank and fiscal policies, and currency trends to company-specific issues like corporate profits.
  • In turn, these business cycle-related shifts can also drive financial asset prices up or down, potentially creating opportunities for alert investors.

Definitions:

Purchasing Managers Indexes (PMI) measure the manufacturing and services sectors in an economy, based on survey data collected from a representative panel of manufacturing and services firms. A PMI greater than 50% indicates expansion; below 50%, contraction.

Gross Domestic Product ("GDP") is an economic statistic which measures the market value of all final goods and services produced within a country in a given period of time.

Developed markets refers to countries that have sound, well-established economies and are therefore thought to offer safer, more stable investment opportunities than developing markets.

Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. These nations are sometimes also referred to as developing or less developed countries.


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Poll

Which Asian country will have the strongest growth in the coming year?








Poll

Which Asian country will have the strongest growth in the coming year?

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