Global manufacturing activity is a leading measure for the shipping industry. This is because economic activity is highly correlated with global trade, and manufacturing activity has historically been more sensitive to economic fluctuations than consumption has. Thus, when global manufacturing activity rises, shipping companies often benefit.
Jumping Further Away from 50
On January 31st, JP Morgan’s Global Manufacturing Purchasing Managers Index (PMI) jumped to 51.5, marking an increase of 1.4 from the prior month. The purchasing managers index is one of the most reliable and up to date indicators of economic activity that takes into account the number of new orders, inventory levels, production levels, supplier lead times, and manufacturing employment. Figures above 50 generally point to expansion while those below indicate contraction. The further away a number is from 50, the stronger the expansion or contraction is for that month.
Business Managers May Be More Optimistic
JP Morgan’s Global Manufacturing PMI began increasing in September 2012, following several stimulus announcements from countries like China, Brazil, Japan and South Korea. Stabilization in the Eurozone through the European Central Bank’s commitment in reducing the probable near-term collapse of the Euro aided the turnaround as well. With Japan’s recent public release of increased stimulus, and further developments such as rising industrial profit in China, business managers may be more excited with 2013’s outlook.
Shipping Companies Will Benefit
Products such as iron ore, coal and oil are key inputs for manufacturing as they are used to make steel (a significant material used within the manufacturing industry). This means shipping companies such as DryShips, Inc. (DRYS), Diana Shipping, Inc. (DSX), and Eagle Bulk Shipping, Inc. (EGLE) will benefit. For investors looking for diversified investments in leading companies world-wide, The Guggenheim Shipping ETF (SEA) is an option.