September PMI data was generally better across the board with increases in the China and US indices and a Europe index that didn’t get any worse.
The US was particularly pleasing with a rise from 49.6 in August to 51.5 in September which puts the index back into expansion territory. The biggest gain came through new orders which rose from 47.1 to 52.3. All the key indices moved in the right direction: the inventories index fell, the employment index rose and while the export index remained under 50, it put in a modest improvement.
We’re not reading this result as a sign of a resurgent US economy, but rather previous readings had become too pessimistic for an economy that we believe is continuing to expand on average at around a 2% annual pace. There are still near term headwinds such as fiscal uncertainty and broader global economic weakness that will continue to constrain growth, especially exports.
The Europe PMI came in at 46.1 in September, up from 46.0 in the prior month. The good news in this case is that it didn’t get any worse. This supports other data that tells us the European recession intensified into the third quarter and there are no signs of imminent recovery. Notably data out of France deteriorated sharply. Up until recently France, along with Germany, had been withstanding the austerity headwinds better than most.
The China PMI was better, rising from 49.2 in August to 49.8 in September. New orders were 49.8 (up from 48.7) with export orders rising to a “less bad” 48.8 (46.6). Weak external demand, particularly out of Europe, will continue to be the major constraint on this sector in the near term. This result makes us more comfortable that while we expect China GDP growth to slow further to Q3 to around 7.4%, we don’t expect it to deteriorate further into the end of the year.
The global PMI came in at 48.9 for September, up from 48.1 in August. The improvement was mostly driven by the recovery in the US index. That’s in line with the recent downward revision in our calendar 2012 global GDP growth to 3.0% (see Global Growth Outlook).