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The Markit Economics PMI Report: Scorecard for Economies

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Markit PMI helps gauge business conditions

The Markit Economics PMI (purchasing managers’ index) surveys are helpful in understanding business conditions in any economy. For example, investors in the European economy (VGK) can use this tool to assess whether the monetary stimulus being provided to the economy by the European Central Bank is helping industrial activity pick up.

The US industrial sector is dominated by companies such as General Electric (GE), 3M (MMM), Caterpillar (CAT), and United Technologies (UTX), along with smaller players such as Allegheny Technologies (ATI). Similarly, investors in these companies follow the Markit US Manufacturing PMI monthly reading. This reading helps them track any rise or fall in the economy’s industrial activity that could substantially impact their investment in the US industrial sector (XLI).

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The EXI provides exposure to the global industrials sector

The iShares Global Industrials ETF (EXI) tracks the performance of the industrials sector of global equity markets. The ETF seeks to replicate the performance of the S&P Global Industrials Index and is majorly invested in companies such as General Electric (GE), 3M (MMM), and United Technologies (UTX). These companies also dominate the US industrials sector.

The industrial sector serves as the engine of growth for any economy, providing employment, infrastructure, producer goods, consumer goods, and export competitiveness. The industrial sector reports also affect broad market investors such as those invested in the SPDR S&P 500 ETF Trust (SPY) and the iShares Core S&P 500 ETF (IVV).

A business activity scorecard

The Markit PMI report serves as a business activity scorecard for the economy under survey. This monthly economic survey provides insight into the private sector economy by tracking variables such as output, new orders, employment, and prices across key sectors. Its importance is enhanced by the fact that many policymakers use this data while making interest rate decisions that affect the economy at large.

On August 21, Markit Economics released its August Flash PMI reports for the US, the Eurozone, Germany, France, China, and Japan. In this series, we’ll take you through each of these reports. We’ll look at where industrial activity is picking up and where it’s lagging.

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