Fisher Investments Editorial Staff
Others

Fuzzy Manufacturing Math

By, 08/03/2010

Story Highlights:

  • On Monday, manufacturing data for July 2010 began trickling in, confirming the global manufacturing expansion continues, albeit a little less vigorously.
  • In the US, the Institute for Supply Management's monthly gauge of manufacturing remained firmly in expansionary territory.
  • Manufacturing remains a bright spot in the global economic recovery.
  • Stocks seemed to largely agree expansion is what counts, even if it's a bit less emphatic at the moment—the MSCI World ended the day up a nice +2.4%.*

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August is here, and, as always, with the beginning of a new month comes economic data from the previous one. On Monday, July's manufacturing data began trickling in, confirming the global manufacturing expansion continues, albeit a little less vigorously.

In the US, the Institute for Supply Management's (ISM) Purchasing Managers' Index (PMI) remained firmly in expansionary territory at a better-than-expected 55.5 from 56.2 in June, its 12th consecutive month of expansion. A reading above 50 indicates expansion, where more firms are reporting growth than contraction.

UK manufacturing also remained robust in July—the Markit purchasing managers' index registered 57.3 (better than the expected 57.0). July eurozone PMI was reported at 56.7—exceeding expectations and reaching a three-month high. Germany led the way for the eurozone, but it should be noted activity also expanded in PIIGS countries, Spain and Italy.

Official Chinese PMI expanded in July by the smallest margin in 17 months—reading 51.2 in July, down from 52.1 in June. Similarly, manufacturing in Taiwan and South Korea continued to expand at a slightly slower pace. Some folks read the Chinese numbers as bearish for the Emerging Markets-led global recovery. It's debatable whether China reaccelerates toward the end of the year. But even so, China's not the only big Emerging Market out there. India reported excellent expansion (57.6, up from 57.3 in June) for the 16th straight month. 

There's one consistent theme in the data above—expansion. Manufacturing remains a bright spot in the global economic recovery. But you might not know it from the headlines—the financial media chose to emphasize the fact PMIs "slowed" in July instead of emphasizing the fact most are still squarely expansionary. Worrying over the slowing recovery has been a trend lately. The US Commerce Department announced US Q2 GDP grew 2.4% last Friday, and received a similarly chilly reception. Yet GDP expanded across all categories. Imports were the biggest detractor, lopping off 4%, but imports reflect resurgent trade—a great sign! Yet they show up as a negative in the GDP calculation. Without the quirky import debit, GDP grew a whole 6.4%. 

Take a look at the day's headlines—stories indicating "slowdowns," "declines," and "slow growth" were everywhere—but manufacturing around the globe expanded. This is tantamount to congratulating Jack Nicklaus on winning 18 major golf championships, then complaining he didn't win them by consistently increasing margins. Stocks seemed to largely agree expansion is what counts, even if it's a bit slower at the moment—the MSCI World ended Monday up a nice +2.4%. *

*Bloomberg, Inc.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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