Thursday, July 1, 2010

US PMI - Is the double dip approaching?

The US manufacturing PMI came in well under consensus at 56.2 vs an expected 59 even, and down sharply from 59.7 in May. The drop was notably in several key areas e.g. new orders down -7.2 to to 58.5, production down -5.2 to 61.4, and exports down -6 to 56. Though the index is still in expansionary territory the drop is possibly cause for concern.

But the most notable decrease was in the prices index, down 20.5 points to 57, with 18% (vs 5%) reporting lower prices, 50% (vs 35%) reporting prices staying the same, and 32% (vs 60%) reporting higher prices. So on a net basis people are still seeing price rises (32%-18% = 14%). But the data point is interesting on what it may mean, for example it could reflect that price normalisation has run its course (people discounting during the recession to try get business, but now raising prices), it could mean that deflation is on its way, and it could simply mean that things are still tough and that demand growth is not enough to support price increases.

So there's the inflation outlook implications, but then there's also the signaling effect of prices on a demand level or economic activity level. Both of which don't look particularly promising in this light, but of course the June data could just be a blip.

Overall though, the data is pretty disappointing, and adds weight to forecasts for a double dip, or stop-start recovery. But as with the China data out yesterday, the index is still in expansionary territory, and things could just keep chugging along at the same level. This was never going to be a fast recovery, and it was never going to be a straight line recovery - everyone still has a lot of work ahead of them.

Econ Grapher Analytics
Institute for Supply Management
US Bureau of Labour Statistics

Article Source:

No comments:

Post a Comment

What do you think?