Some mildly positive PMI data from Markit this morning (published as the Bank of England’s minutes heaped praise on the readings’ accuracy - see page 3).
Flash Eurozone PMI Composite Output Index at 49.7 (50.4 in January). Second-highest in 6 months
Flash Eurozone Manufacturing PMI at 49.0 (48.8 in January). 6-month high
Flash France Manufacturing PMI rises to 50.2 (48.5 in January), 7-month high
Flash China Manufacturing PMI at 49.7 (48.8 in January). 4-month high
Flash Germany Manufacturing PMI at 50.1 (51.0 in January), 2-month low
Ok, so the Eurozone’s composite reading implies a slight contraction following the marginal expansion seen in January but, as Markit said:
[It] was nevertheless the second highest of the past six months, and suggests that the Eurozone economy has stabilised over the first two months of the year having contracted in the final quarter of 2011.
However, as this chart below shows, there continues to be a considerable divergence between the PMI’s of the core (France and Germany) and the rest:
On the manufacturing front, the Eurozone’s reading is still in negative territory, although the rate of deterioration eased for the fourth month in a row to register the smallest drop in demand for six months.
Germany’s manufacturing reading doesn’t look so hot but is above the magic 50 that signals expansion to come.
Perhaps more important is the marked fall in new export work received by German manufacturers, largely reflecting weak demand from within Europe.
“The failure of new orders to gain traction mainly stems from weak external demand, as exports have now fallen for eight months in a row,” said Tim Moore, senior economist at Markit.
That might help the Eurozone’s rebalancing efforts if Germany’s rising import spend was coming from the Eurozone too.
Unfortunately, the share of German imports that come from other eurozone countries fell quite a lot between 2005 and 2010 so no such luck there:
China’s reading was mostly positive. As Goldman’s Yu Song, said (emphasis ours):
While February’s reading itself might be subject to a higher level of uncertainty than other months in the year because of the Lunar New Year distortions, the January-February data is mostly free from these distortions and it went up to 49.3% from 48.8% in December.
We reiterate our long held view that a reading below 50% does NOT imply that manufacturing activities shrank (as having negative sequential growth). A PMI reading of 50% in China typically implies sub-trend growth but it is a long way above 0% though this relationship is not necessarily stable and we believe the current level of sequential growth is not too far away from the trend level (15%-16% for industrial production and mid-9% for GDP).
The stronger-than-expected ytd PMI data despite relatively tight liquidity supply since the start of the year (January credit supply disappointed the market already and media reports still weak credit supply in February) may reflect (1) the lagged effects of the policy loosening in 4Q2011; and (2) resilient external demand growth…. As a result, unless we experience a dramatic fall in external demand going forward (which is not our baseline forecast) the risk for a major slowdown in the Chinese economy (i.e. a hard landing) is minimal.
Related links:
A fate worse than a hard landing for China – FT Alphaville
China’s not so amazing PMIs – FT Alphaville
The PBoC’s unofficial rate policy – FT Alphaville