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The State of Manufacturing According to PMIs

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Manufacturing: Markit PMIs

In the preceding part of this series, we looked at Goldman Sachs’ assessment of the rise in commodity prices. One of the basic premises that Goldman’s estimates are based on is a positive outlook on manufacturing.

To assess the state of manufacturing, we’ll look at manufacturing PMIs (purchasing managers’ indexes) published by Markit. Markit’s PMI is based on the following five individual indices:

  • new orders: 30% weight
  • output: 25% weight
  • employment: 20% weight
  • suppliers’ delivery times: 15% weight
  • stocks of items purchased: 10% weight

The index for suppliers’ delivery times is inverted. The shorter the delivery time, the higher the index.

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PMI for the US

Markit’s “flash” reading of the US manufacturing PMI was released on November 23. The flash estimate put the index at 53.9 in November, as compared to 53.4 in October. (A reading above 50 means a general expansion in manufacturing activity. Anything below 50 means a general contraction.)

The report showed that output growth surged to the fastest pace in more than one and a half years. Inventory building continued while new orders saw the sharpest rise since October 2015. The report noted that “November data highlighted a sustained acceleration in production growth across the US manufacturing sector, and the latest upturn was the fastest since early-2015.”

PMI for Europe

Markit came out with its “flash” estimate of Eurozone manufacturing PMI also on November 23. The reading of 53.7 for November, up from 53.5 in October, was a 34-month high. The report noted that the Composite PMI—which includes both manufacturing and service elements—saw an increase in new orders and strengthening of employment growth.

It looks like manufacturing activity is picking up the pace in both the US (IVV) (RSP) (USMV) as well as the Eurozone (EZU) (FEZ). If Donald Trump keeps his promise of increased infrastructure spending and mining activity, then it could provide a fillip to commodities prices in general and metals and mining sectors in particular.

Apart from talking about commodity prices, Goldman Sachs also provided its view on crude oil prices and gold. We’ll explore this further in the next and final part of the series.

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