Besides Greece And Turkey, Manufacturing Activity in Europe Strengthens

Manufacturing activity in the eurozone strengthened sharply in October, beating expectations, according to “flash,” or preliminary, purchasing manager’s index (PMI) data. The region is growing at its fastest pace so far this year, having climbed to its highest reading since April 2014.

Premilimary Eurozone Manufacturing PMI
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The news follows positive September readings in emerging European countries that we track closely, an encouraging sign that the continent’s economy might finally be picking up steam after an extended period of sluggish growth.

Hungary, volatile as always, was the largest gainer last month, leaping ahead 5.3 points to a nearly three-year high. Historically, the Central European country has bumped up when the transport sector, which represents a big share of production, gets a new large order.

Hungary Manufacturing PMI
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I’ve written numerous times on why we monitor PMI. Unlike gross domestic product (GDP), which is a backward-looking indicator, PMI gives us a foreshadowing of manufacturing activity three and six months out. This is important for investors because as manufacturing accelerates, so too does demand for commodities and natural resources, helping to support prices.

Poland Manufacturing PMI
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Czech Republic Manufacturing PMI
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Czech Republic Manufacturing PMI
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Not only do we like to see the monthly reading come in above 50—the threshold separating industry expansion from contraction—but it’s exceptionally positive when the reading appears above its three-month moving average.

This was the case for all countries except Greece and Turkey, both of which shrank slightly in September.

[drizzle]Greece Manufacturing PMI
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Turkey Manufacturing PMI
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All in all, I’m encouraged by the eurozone’s positive October PMI, even if it is preliminary. Whether you like it or not, ours is a global economy, and it’s impossible for any country, even one as strong as the U.S., to do all the heavy lifting alone. What we need now is synchronized global growth, and this is definitely a step in the right direction.

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About the Author

Frank Holmes
Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., a boutique investment advisory firm based in San Antonio that manages domestic and offshore funds specializing in the natural resources and emerging markets sectors. The company’s no-load mutual funds include the Global Resources Fund (PSPFX), the World Precious Minerals Fund (UNWPX) and the Gold and Precious Metals Fund (USERX). For more insight and perspective from Mr. Holmes, please visit his investment blog, “Frank Talk” (http://www.usfunds.com/investor-resources/frank-talk/).

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