The August round of manufacturing PMIs at an aggregate level showed a trend of muddling through. But it was a different type of muddling through whether you were talking about developed economies or emerging markets. Taking a look at the first chart below, the composite emerging markets manufacturing PMI ticked up back to the top of the range – and that’s the point… it has been stuck in a range after recovering in 2016. There are a couple of tailwinds that could help it at least maintain, that includes easier monetary policy in emerging markets, stable Chinese economy, improving global trade growth, and of course the second thing in that chart – strong developed economies.
Within developed economies, Europe has probably been the most surprising in terms of chalking up solid economic confidence readings, and I've talked extensively about that in previous reports. However one thing that's worth talking about is the US economy. Specifically, there has been a sizable divergence open up between the Markit and ISM manufacturing PMIs. Markit says ho-hum muddle through growth at around 2% (GDP), while the ISM one says acceleration and GDP growth of 4% or more. My view is the truth probably lies somewhere in between, but in any case there is a variety of indicators which show the US economy is on a firm footing with an increasingly tight labor market, a picture of an economy progressing through the business cycle towards more inflation, monetary policy normalization, and for now a backdrop that should be equity positive.
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Manufacturing is muddling through, notably though EM vs DM are muddling along at a very different pace.
Disagreement between the two manufacturing PMIs - the truth probably lies somewhere in between, and even if it's not 4% it's still respectable economic growth.
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