Manufacturers Made Some Stuff in July

It's a new month, dear readers, which can only mean one thing: Time for your manufacturing PMI smorgasbord, alternatively known as "the time we try to make you laugh at a data dump." Purchasing managers' indexes aren't snazzy. Sometimes they bore us, too. But they are a handy, early read on last month's economic activity, and who doesn't like that? As it happens, July's read looks pretty good, another bit of evidence the world's factories are emerging from a recent soft patch.

For those new to PMI Fest, these are not measures of output. They're surveys measuring whether businesses saw improvement across 10-ish categories (output, new business, payrolls, yada). Statisticians take all the responses, do some statisticianey things, utter magical incantations^[i], and aggregate the whole shebang into one shiny number. If that number is above 50, it means a majority of firms grew. If it is below 50, a majority deteriorated. If it is 50, things were probably unchanged. None of this is airtight, as PMIs don't even attempt to calculate how much each firm grew. If fewer than 50% of firms grew but happened to grow fast, then the net result might be growth. This has happened in France for the better part of three years. If more than 50% of firms grew, but the others shrank at a much faster rate, then the net result might be contraction. Of the various components, new orders are the most meaningful, as today's orders are tomorrow's production. They're the only truly forward-looking part of a PMI.

With all that out of the way, here is your quick-and-dirty July manufacturing snapshot, color-coded for your viewing ease.

Exhibit 1: Your July Manufacturing PMI Omnibus

Sources: Market, ISM, FactSet, National Statistics Bureau of China, Procure.ch, SIPMM, as of 8/2/2016.

Some broad trends: North America and Europe grew nicely, China trudged along as usual, commodity-heavy Emerging Markets struggled, and other Emerging Markets did better. It's a mixed bag, but less mixed than it was six-plus months ago, when more countries contracted. The tide does seem to be turning.

The UK is one notable exception to that last sentence, but it is too early to draw any conclusions. Most observers say it's solid evidence Brexit is starting to take a big bite out of the UK economy, but we have our doubts. For one, sentiment was the primary detractor. Output and new orders fell as well, but don't underestimate sentiment's impact on those categories. It would be entirely normal for Sally Q. Shopkeeper to freak out after the vote and slash her order for the new fall clothing lines out of fear shoppers will stay away. It would also be entirely normal for her to soon realize that was a short-sighted, overwrought reaction, and file a bigger order in the next month or so. That's just sort of how the human psyche works. We've all been there.

Overall and on average, though, manufacturing is steadily improving, and it's starting to filter through into other data series. Trade in goods has picked up globally in recent months. Air freight volumes have turned positive again, most notably in Europe. None of this is a massive economic tailwind, as the developed world's service sector is the world's primary growth engine, but a positive is a positive. And at a time when folks still broadly fear for the global economy, an incremental manufacturing tailwind should help reality continue beating expectations, which is good for stocks.