Business surveys generally provide little if any lead on economic developments and sometimes give false signals (e.g. the suggestion from the UK PMIs that output would fall in the wake of the Brexit vote*). They are, however, timely, and can be useful in confirming a change in the economic landscape, particularly when surveys in a number of countries shift simultaneously.
Such a shift appears to be occurring currently – manufacturing surveys strengthened in early October in the US, Japan, Eurozone and UK, consistent with the view here that economic acceleration is under way globally.
In the US, an average** of the new orders components of the New York and Philadelphia Fed manufacturing surveys rose sharply this month, confirming that a September rebound in the ISM new orders index was genuine – see first chart. The orders index of the alternative Markit PMI survey, meanwhile, reached a 12-month high.
The Markit Japan PMI new orders index weakened sharply as the yen surged during the first half of 2016 but regained the 50 level – implying more firms reporting rises than falls – in October, despite an absence of currency relief. The Eurozone index has remained comfortably in expansionary territory and rose to a four-month high this month – second chart.
The Eurozone PMI gain was led by strength in Germany, which was confirmed by today’s Ifo survey, showing manufacturing business expectations at their highest since 2014 – third chart.
In the UK, the October CBI quarterly industrial survey reported a rebound in the expected domestic orders balance and a surge in export orders – fourth chart***. Before attributing the latter to sterling weakness, it should be noted that the percentage of firms judging pricing to be a constraint on exports was stable over the quarter, questioning Brexiter claims that a lower pound will allow UK exporters to gain market share – fifth chart.
*UK GDP is estimated to have risen by 0.3% between June and July, based on sectoral output data.
**Average of current and expected new order balances.
***Seasonal adjustment applied to CBI data.