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Good News in Global Data

| February 05, 2018

In spite of the long-overdue pullback in major markets – which continues even as we write this update, the latest global PMIs suggest that the global economy is in great shape and that the end of the global expansion is still many months away. The global manufacturing PMI (Purchasing Manager Index) was essentially flat in January, inching down 0.1 to 54.4. The widely-followed index remains near its highest level since February 2011, indicating a continuation of strong global growth trends.

Even if December marked the peak in the global PMIs, which is certainly not a given at this point, an analysis from our friends at Ned Davis Research suggests that the end of the global expansion is still many months away. In fact, historically, the PMI has peaked a median 15 months before the beginning of global recession.

Significantly, many of the components in the PMIs show continued strength. The only weak spot for January was in the New Orders component, which fell 0.5 points to 55.4 and was the reason the global PMI fell at all. The main culprits here were Germany and India, although index levels remain elevated in both countries, especially in Germany.

The global Output and Employment indexes were both unchanged, holding at their highest levels since early 2011. Export Orders rose for the fourth month to 54.1, indicating its fastest growth since February 2011. Inventories grew at their fastest pace since August 2006, normally a bit worrisome. But even with the slower growth in new orders, the new orders to inventories ratio remained high, a sign that future output is not threatened. Furthermore, the Future Output Index jumped 0.8 points to 64.4, an 11-month high.

On a country-by-country basis, growth broadened even further in January. The share of individual country PMIs in expansion territory ticked up to 94%, just shy of the largest share since January 2011. The share of PMIs above their year-ago levels edged down amid signs of a maturing expansion, but to a still-elevated 76%.

The only potential fly in the ointment in this otherwise sea of good economic news is that price pressures increased, a development we here at MPCA will monitor closely. Both the input and output price indexes edged up and are hovering around their highest levels since mid-2011. All countries reported rising input and output prices, a condition rarely seen since the Great Recession, suggesting that global inflation pressures may be returning. If these price pressures began to exert their influence on the Eurozone’s stubbornly low CPI inflation, the European Central Bank may soon have good reason to ease their very accommodative stance.

We are the first to acknowledge that good data does not always translate to good movement in equity prices in the short-run, but we believe it does in the longer-term. As downward volatility reintroduces itself after a notable absence in 2017, we are focused on the long-term and we like what the data currently tells us.