Global manufacturing PMI surveys for July were – as expected – mixed, allowing optimists and pessimists to maintain their respective forecasts for second-half growth performance. The bias here remains with the optimists, based on faster G7 real narrow money expansion, which should continue to be supported by a slowdown in inflation due to recent commodity price stabilisation.

G7 weighted-average PMI new orders fell slightly further in July to just below the 50 break-even level. The weakness was within the tolerance of the monetary forecast, suggesting an improvement in momentum only from the late summer. The monthly decline reflected small further falls in the US, Euroland and UK offset by a sizeable gain in Japan.

Interestingly, Chinese new orders firmed for the third consecutive month (based on the more comprehensive Federation of Logistics and Purchasing survey, adjusting the raw number for seasonal factors). The Chinese series has led the G7 measure by one, four, three and three months respectively at the last four turning points since late 2008, suggesting that G7 orders will rise in August or September at the latest – first chart.

The fall in US PMI (ISM) new orders in July fits the responses on current flows in the five Federal Reserve regional manufacturing surveys – second chart. These surveys, however, indicated a small improvement in order expectations on average, consistent with the hypothesis that the ISM index is forming a bottom.