The PMI is a composite (diffusion) index in which current output - which stood at 57.4 in February, down from 60.2 in January - is only one component. Despite this slight slowdown - it was the lowest reading in three months - production increased for the ninth month running.
Basically I think it is possible to divide the respective economies into three broad groups.
In the first place there are a bunch of emerging economies (largely in Asia, but also Brazil, and now increasingly South Africa) where the recovery continues apace, and the only real doubt is about China, and what happens to manufacturing momentum as inflation takes hold and the central bank tightens liquidity provision.
Then come the main group of developed economies, where recovery continues, but at a fairly muted pace. France stands out in this group, since despite the fact manufacturing only expands at a medium pace it is supported by strongish domestic demand. The industrial recoveries in the US and Germany seem more fragile, the former for uncertainties about what will actually happen as the stimulus effect weakens, and the later due to the heavy dependency on exports.
Finally we have the stragglers - characterised by Greece and Spain - where the manufacturing sectors struggle to find oxygen. Also manufacturing activity in Ireland, Russia and Italy remains fragile.
Central Europe had a positive month in February, though at this point it is not clear to what extent this is dependent on the uptick in Germany, and thus what will happen if German activity weakens.
One other element is striking in this months reports: the impact of the changed USD/Euro parity. The relative weakening in the Euro meant that even though domestic demand in many cases remains weak, most Eurozone country reports revealed strong improvements in extra-Eurozone export orders. The only exception to this picture was in Greece. On the other hand, the rise in the US dollar seems to be taking its toll on exports, and the ISM survey showed a weakening in the rate of increase in new export orders.
The Japanese Enigma
Japan however remains an enigma, since the impression given since December of a steady slowdown continues to be reinforced by the February manufacturing PMI. The reading at 52.5 was identical with January one, but both were down by 1.3 points compared to December.
Export sales were up sharply in February, but the level of new business taken by Japanese manufacturers rose at only a marginal rate - the slowest in the current eight-month period of expansion. Respondents widely attributed slower new business growth to weak domestic consumption. So Japan has a dual economy, and the domestic one still isn't getting traction from the export sector. Japan's exports are mainly supported at this point by demand from Asia, especially China, and it remains to be seen what will happen when China eventually starts to slow.
The New Export Orders Index rose rapidly - by 3.7 points to 55.2 - suggesting that export growth gained significant momentum on the month. But with the yen trading at around 90 to the USD (compared with the break even point for export companies of 92.9 yen per dollar reported in the full year 2009 survey) this may well gradually have a negative impact on exports and thus it is quite possible that growth in exports will slow in the near future, with problematic consequences for an export dependent Japanese economy.
The Emerging World Continues It's Strong Performance
India now seems to be leading the charge, and the seasonally adjusted PMI climbed for the third month running to 58.5 - up from 57.6 in January - suggesting a further significant improvement in the operating conditions faced by Indian manufacturers.Behind the latest rise in the headline index were faster increases in new orders, output and employment.
Brazil’s manufacturing sector also expanded at a marked pace in February, although growth cooled slightly from January’s series-record performance. Both output and new orders grew strongly, while job creation accelerated again. On the inflation from survey respondents reported rising price pressures, as higher demand for raw materials, capacity constraints at suppliers and unfavourable exchange rates pushed up input prices.
The headline seasonally adjusted Brazil Manufacturing PMI in fact slipped from January’s survey high of 57.8 to 55.8 in February. Despite the slightly weaker expansion pace the latest reading still indicates a marked improvement in operating conditions during the month. Total incoming new business expanded for the seventh month running in February, although the latest increase was the weakest since last October. Both domestic and foreign sales rose on the month, however survey responses showed that the former remained the primary driver of overall new order growth. Anecdotal evidence suggested that a combination of better global economic conditions and successful promotional activities underpinned gains in new work.
The recovery in South Africa's manufacturing sector also continued in February, and the seasonally adjusted PMI increased to 60.4 in February from 53.6 in January, according to Kagiso Securities who run the survey, the highest reading since early 2007. The biggest jump came from new sales orders, which surged by 13.2 points to 68.6 in February, while the PMI employment index increased for the second consecutive month to 52.1.
Meanwhile, inflation pressures seem to be mounting, and the PMI price index climbed to 61.9 points in February. This was the highest level since early 2009, although still below the long-term average of over 69 points.
On the other hand China’s manufacturing activity grew less than expected in February, as the government reined in spending and purchasing managers reported concerns about the impact of rapidly rising wages. The HSBC China PMI fell to a three-month low of 55.8, down from a record 57.4 in January. An analysis of the components reveals that new orders fell 6.2 percentage points to 53.7 while - despite a strong export performance in January - new export orders fell 2.9 percentage points to 50.3.
Europe's Manufacturing Industry Continued Its Uneven Recovery
At 54.2 in February (up from 52.4 in January) the Markit Final Eurozone Manufacturing PMI posted its highest reading since August 2007 and was above the neutral 50.0 mark for the fifth successive month. The 1.8 points rise in the index was the largest improvement since last August.
The headline PMI – a composite index based on measures of production, orders, employment, inventories and supplier performance – was also slightly above the earlier flash estimate of 54.1.
Growth of output was recorded for the seventh successive month in February, and the rate of expansion was the fastest since March 2007. Production increased in the capital, consumer and intermediate goods sectors. The strongest rise was recorded for investment products, with growth in this sector the quickest since June 2007.
However, national level PMI data revealed a widening disparity between the best and worst performing manufacturing economies. Germany registered the strongest growth of output, overtaking France. The rate of increase in Germany accelerated for the second month running to its highest since January 2007. Growth also picked up in Austria, was broadly unchanged in the Netherlands but eased in France (although the level remained reasonably strong) and Italy (where output growth remains fragile). Meanwhile, the downturns in Spain, Ireland and Greece continued. Rates of contraction in Spain and Ireland were marginal and much slower than in January, whereas Greece fell further behind the other euro area nations, seeing its sharpest fall in production since last April.
February data indicated that the recovery in the German manufacturing sector gained momentum during the month, with output and new orders rising at the fastest rates for over three years, while employment numbers fell at a much slower pace. At 57.2, up sharply from 53.7 in January, the final Markit PMI was at its highest since June 2007 and above the neutral 50.0 mark for the fifth month in succession. Output levels increased in all three market groups monitored by the survey and growth remained strongest in the investment goods sector. Overall levels of manufacturing production rose at the fastest rate since January 2007, driven by improving global economic conditions and a corresponding expansion of incoming new orders.
February data pointed to the fastest rise in new export orders for three years, which companies mostly attributed to higher demand from emerging markets. Which suggests the decline in the Euro is having a positive impact on German external competitiveness.
The Italian manufacturing sector continued to expand in February, although the speed of recovery slowed fractionally from January and the rate of improvement remains modest. The seasonally adjusted Markit PMI registered 51.6, fractionally down from 51.7 in January. Higher output and growth in new orders also mask underlying headwinds facing what still remains a fragile recovery in Italy's manufacturing industry: job losses continue to mount, and input price inflation soared to an eighteen-month high. Nevertheless export orders have now risen continuously for the past four months, and survey respondents linked the increase to improving demand in key export nations.
Business conditions in the Spanish manufacturing sector continued to deteriorate over the month, but the latest decline was the weakest since January 2008. New business fell at a much slower pace, in part due to an increase in new export orders. Consequently, the rates of contraction in output and employment also eased. The seasonally adjusted Markit PMI rose to 49.1 in February, from 45.3 in the previous month, showing the slowest deterioration in operating conditions in more than two years. Nevertheless Spanish manufacturing production still decreased in February, although the rate of contraction eased to its weakest in the current seven-month period of decline. Falling output was concentrated in the consumer and investment goods sectors. Total new business fell slightly as domestic demand continued to decline, with a modest rise in new export orders being insufficient to offset the trend. The Euro decline has helped Spain somewhat, since, according to panellists, exports to countries from outside the Eurozone had been a key factor behind growth in new business from abroad.
Operating conditions in Irish manufacturing firms continued to deteriorate in February, although the level of output remained broadly unchanged over the month suggesting industrial output is steadily stabilising. Total new business decreased despite a sharp rise in new export orders. The seasonally adjusted NCB PMI rose slightly to 48.6 in February, from 48.1 in January, reflecting a modest deterioration of business conditions that was broadly similar to those seen over the previous four months. The underlying weakness in domestic demand is causing ongoing problems for Irish industry.
Greek industry now has the dubious title of being the worst performer globally (taking over this particular poll position from Spain) and the seasonally adjusted Markit Greece Manufacturing PMI continued to slide in February. The index fell from 46.8 in January to hit a ten-month low of 44.2, signalling a marked weakening in the health of Greece’s manufacturing economy. Business conditions in the sector have worsened in each of the past six months, following a brief respite in August last year. Overall, the sector has contracted in sixteen of the past seventeen survey periods.
More preoccupyingly total incoming new work fell at the fastest pace since April 2009, as both domestic and external demand receded. Data indicated that the decline in domestic demand was far more pronounced, but new export orders still decreased, albeit moderately. This makes Greece the only Eurozone country not to see the Euro's fall reflected in a pickup in export demand, a reflection of just how deep the competitiveness problem is in the country's manufacturing sector.
Central Europe Gets A Boost From German Demand
Polish manufacturing industry showed a renewed recovery in momentum in February. Output, new orders and new export orders all rose at stronger rates. Having slipped the previous month, the headline HSBC Manufacturing PMI posted 52.4 in February, significantly above the long-run trend of 49.6.
New orders received by Polish manufacturers rose for the fifth month in succession. The rate of growth picked up to a robust level that was comfortably faster than the eleven-and-a-half year average for the survey. Data signalled similarly marked increases in new work from domestic and export markets.
Czech PMI data continued to point to a recovery in the manufacturing sector mid-way through the first quarter of 2010. New business rose at the fastest rate for almost two years, leading to a further acceleration in production growth. The PMI remained above the no-change mark of 50.0 for the fourth successive month, and rose to 54.3 indicating the strongest overall growth in the sector since March 2008.
Growth of new orders was maintained for the seventh successive month in February. The rate of expansion continued to sharpen and was above the average for the survey which began in July 2001. Data signalled robust demand from both domestic and export markets, with the key German and French markets cited as sources of growth.
Hungary's manufacturing PMI ticked up 2.1 percentage points to 55.9 points, according to the Hungarian Association of Logistics, Purchasing and Inventory Management (HALPIM). The last time the index was at this level was in June 2008 (56.2). This is the only second time since August 2008 that the index has been above 50. (The January reading was revised upward to 53.8 from 53.5 originally). Now we need to see just how sustainable this is in terms of demand for Hungarian exports in Germany and elsewhere since domestic demand is absolutely gone and out for the count at the moment.
While in Russia Manufacturing Stagnates and in Turkey It Weakens
Business conditions in Russia’s manufacturing sector continued to improve in February, but the pace of growth remained lacklustre, according to the latest PMI details from VTB Capital. Output rose for the seventh successive month, although new orders increased at a weaker pace and jobs were shed at the fastest rate since last August. Meanwhile, cost inflationary pressures built up. The headline seasonally adjusted Russian Manufacturing PMI remained above the no-change mark of 50.0 for the second month running in February. It was the first time since July 2007 that the Index has posted successive readings above 50.0. However, the latest figure of 50.2, down from 50.8 in January, suggested there had been only a marginal overall improvement in operating conditions. The drop in the PMI reading mainly reflected weaker growth of both output and new orders, and a faster drop in employment.
The overall improvement in business conditions was underpinned by a rise in the volume of incoming new work. New orders have increased in six of the past eight months, although the latest increase was only modest and weaker than in January. New export orders remained especially fragile, showing only marginal growth for the second month running.
The headline HSBC Turkey Manufacturing PMI came in at 50.9 in February, indicating a marginal improvement of business conditions in the Turkish manufacturing sector, although the PMI fell back from January’s 53.0. New orders increased marginally during February, supported by improved demand, particularly from overseas. However, the rate at which incoming new business expanded fell since January, and was one of the lowest recorded during the current ten-month period of sustained increases. Similarly, new export orders increased at a slower pace during February, although the latest rise was still solid according to the survey report.
US Manufacturing Continues To Expand Strongly Despite Falling Back
US manufacturing expanded in February for a seventh consecutive month, although the Institute for Supply Management’s factory index fell to 56.5, lower than anticipated, from January’s 58.4, which was the highest since August 2004. Measures of new orders and production declined, while employment grew at the fastest pace in five years. Factories boosted production to replenish depleted inventories and invested in new equipment last year as global demand picked up following the worst recession in seven decades.
The ISM’s production index fell to 58.4 from 66.2 and the new orders index decreased to 59.5 from 65.9. The employment index increased to 56.1, the highest since January 2005, from 53.3, but the gauge of export orders decreased to 56.5 from 58.5, suggesting the dollar's rise is starting to affect exporters.
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