Euro$ #4 Turns Three

IHS Markit’s Composite US PMI rose to a 10-month high in January 2020. According to its flash estimate, the index was up to 53.1 from 52.7 in the final reading for December 2019. Driven by a rebound in the services component, the composite combines both the manufacturing and service PMI’s into a single number, Markit’s view is that the US economy is experiencing a modest pickup.

U.S. private sector firms indicated a faster expansion of business activity in January, with the pace of growth accelerating to a ten-month high. The upturn was driven by a sharper increase in service sector output, as growth of manufacturing production was unchanged.

Whether or not it is sustained is the only question, and already there are apparent problems with the idea. First, these PMI’s are noisy in short timeframes. In other words, we’ve seen this before, the last time in July when the composite accelerated modestly to near 53. Each time that happens we are told the same thing: the economy has stabilized.

That’s entirely possible, of course, and at some point, a modest acceleration will stick around (Reflation #4). This one, however, has several indications stacking up against it. Underneath the headline, the combined look at new order activity decelerated suggesting at least softening in the months immediately ahead. Manufacturing orders, the sub-index on the manufacturing side, was the lowest since last September – itself a recent low.

Largely because of that, Markit’s Manufacturing PMI appears to have stalled. Diverging from other manufacturing sentiment indications, this one had rebounded to as much as 52.6 in November. It has been down slightly in each of the two months following. Perhaps downside statistical noise, more likely reverting to the underlying trend.

According to Markit, export orders (global demand) are contracting again by a small amount when everyone says the global economy is back on an upward trajectory.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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