PMIs consistent with ongoing moderate recovery
Simon Ward
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Last week's purchasing managers' surveys for November were respectable but weighted-average G7 new orders failed to follow through on October's strong gain – see first chart. The message is that industrial output expansion is reviving after a recent slowdown but should remain well below its pace in the first year of the recovery.
Country surveys show considerable divergence, with strength in China and the UK contrasting with notable weakness in Japan, partly reflecting this year's surge in the yen – second chart. Chinese buoyancy, however, is no longer "good news" for the world economy and equity markets, since associated overheating pressures guarantee further significant policy tightening.
The small fall in the G7 new orders measure reflected slippage in the US component, which continues to follow the pattern of previous cycles – third chart. This comparison suggests further easing into early 2011, a prospect consistent with some slowdown in stockbuilding from its recent rapid pace.
As previously noted, G7 real narrow money continues to grow moderately, offering a reassuring message about the sustainability of the economic recovery, at least through mid 2011.
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