Global PMIs: France Worst, UK First

Tyler Durden's picture

World rankings of June manufacturing PMIs point to GDP accelerating in the U.K. and the risk of the French economy contracting last quarter, according to Bloomberg Briefs' Niraj Shah. The U.K. economy grew by 0.8% in the first three months of the year while French output failed to grow. The French and U.K. economies account for 3.59 percent and 3.4 percent of global output, respectively. Whether one should entrust any faith in forecasting future growth to these soft-survey data is questionable at best but the investing world appears happy to find more confirmation-bias confirming indicators.



As another gentle reminder of how much faith to scribe to PMIs producing valuable output...

Destroying the 'myth' of the exuberant PMI data...

Via BofAML,

While a bit more than half of the recent data have been weaker than expected, the manufacturing and nonmanufacturing purchasing manager’s indexes have been very strong, jumping 4.8 and 5.8 points, respectively, since June. By some accounts, these data are better indicators than the hard numbers that come out of the government. After all, they are released very early, they are raw unfiltered data (other than seasonal adjustment), they are never revised and they are simple to interpret. We disagree. In our view, they are useful as a rough and ready early read on the economy. However, once the corresponding official data are released, we put very little weight on these surveys.

It is important to understand how crude these surveys are. Each month, a few hundred purchasing managers are asked if a variety of activity variables are up, down, or the same relative to the prior month. Their responses are then converted into diffusion indexes: the sum of the number managers reporting activity is “increasing” and half of those reporting “the same.” Note that there is some guesswork involved: the survey is taken before the month is over and some of the questions cover areas of the firm that are difficult for a purchasing manager to get a timely read on. For example, a purchasing manager may not have a very precise idea of what is happening to hiring in a large, diverse firm. Moreover, since they don’t gather specific numbers for each series, they may have to make a rough guess, particularly if the trend is slightly up or down.

Fans of the two indexes point out that they are relatively stable, easy to interpret and never revised. However, in our view, the simplicity of the data is a drawback, not an advantage. It means no attempt is made to correct misreporting or to include late respondents. Moreover, the sample they use is not representative of the overall economy. They represent a broad cross-section of industries, but they oversample big firms and they make no attempt to adjust for the birth and death of firms. The US is a dynamic economy and these surveys will miss these compositional shifts. Indeed, a lot of the revisions to official data come from attempts to fix all these problems rather than ignore them.

A comparison with payroll employment underscores these drawbacks. The preliminary payroll report is based on data from 145,000 establishments with 557,000 individual worksites. Thus if the BLS wanted to, it could turn its raw data into simple up or down answers and then create hundreds of diffusion indexes just like the employment component of the ISM index. However, that would mean throwing out information on both the size of employment changes at each company and turning a big sample into a bunch of tiny samples.

One way to show the information advantage of the employment report is to show how it correlates with manufacturing output. Using data from 1990 to present, the employment component of the manufacturing ISM index has a correlation of 0.39 with monthly industrial production growth. How does the official data compare? First, using the Labor Department’s own diffusion index—based on 84 industries—the correlation improves to 0.46. Second, using the actual job growth data, the correlation improves to 0.60. And, finally, if we also take into account the length of the work week, the correlation for aggregate hours worked and industrial production is 0.69. Clearly, more information is better.


How do we interpret the latest ISM numbers? Table 2 above shows the results when we regress GDP growth on its own lags and then add the composite ISM. The results underscore the difficulty in forecasting GDP. Using the average ISMs for July and August, the model with just GDP lags predicts growth of 2% in 3Q, while the model with the ISM points to 4.0%. However, the error band for these forecasts is very high - the “standard error” for the first model is 2.4pp and the second model 2.1pp. In other words, using a two standard error confidence band, we can be “95% confident” that growth is somewhere between zero and 8%. On the other hand, it is encouraging that the ISM is statistically significant.

*  *  *

The world data mills churn out a lot of surveys.A popular view is that these surveys are better than hard data. In our view, however, these data get way too much air time. They give a timely, rough read on the economy, but should get little weight once hard data are released.

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JustObserving's picture

Well here is a new report from the UK released today:

A new report has dealt a savage blow to George Osborne’s claims of a “recovery” with the revelation that there are more unemployed people in every region of Britain than before the crash of 2008.

In some parts of the UK, unemployment is 50 per cent higher than it was before the recession. The talk in the City and around Westminster may be about a fast-growing economy but the recovery still feels a good way off for millions of people still desperate for work across the rest of the country.

NidStyles's picture

I just want to know what exactly is it that is actually made in the UK?

knukles's picture

Are those PMI's before or after seasonal adjustment to survey data?
Oh yeah and bad teeth.  Lots and lots of bad teeth in the UK.
And boozers.  Like the whole country like to drink till they blackout passout.  Even the chicks.
But bad teeth take the cake

Davos's picture

Secret elite shadow governments?

knukles's picture

Secret elite pedophile shadow governments.

Aaaarghh's picture

our government excel at making hot air

goldhedge's picture

An endless line of Chavs.

Yen Cross's picture

    I don't belive much of anything coming from London these days. I don't doubt the GDP number might be good, when 75% of the U.K. economy is service based. (financial services profits have boomed over this 6 year ponzi)

   I'd like to see how many people are traveling on vacation to the U.K. with the pound at multiyear highs.

NOTaREALmerican's picture

I donno, but try getting a hotel room in London. 

Save_America1st's picture

WTF does the UK produce other than peodophiles, bad teeth, and bad food???!!!

JustObserving's picture

Supercilious accents and American poodles?

NOTaREALmerican's picture

Financial scams !     Their predator class is as highly skilled as ours.

hard_working_guy's picture

Good question.. only thing I can think of is pounds, I don't think they're imported

CharlieMike's picture

BO, women with hairy airpits, women with hairy legs, the list goes on and on.

RaiZH's picture

We produce bankers.

The greatest wealth creators of em all!

SilverDOG's picture

We have FULL recovery.

Believe me, honestly, trust me on this one.

You can take that, to the bank.

sarc, all of it.


Sudden Debt's picture

You didn't do the pinky swear....

Sudden Debt's picture

Just a summer break, that's it... That's why they call it summer break no?

ebworthen's picture

"The sun will come out tomorrow, so you gotta' hang on 'till tomorrow!"

Sing it Annie!  Tell Daddy Warbuck's I say hello, and btw, does he have a twin?

JaKst3r's picture

The UK are selling out real estate, public and private businesses, financial services.. fuck it were taking dollars, remnimbi, roubles and rupees for the family silver and our grandma's (oh and our children, we are selling them too) and calling it exports.

Davos's picture

Pound for new reserve currency!

Seriously, possibly, - help to buy, funding for lending, zero hours contracts, endless cheap labour, ppi payouts, just a load of bullshit really, but the sheep suck it all up, tards...

God save the king!

RaiZH's picture

Ergh, I'd rather be living in Southern France to be honest. 

London is the worlds greatest sh** hole.  

LawsofPhysics's picture

I see that the U.K. has stepped up their "manufacturing" of financial "products" of mass destruction.

logicalman's picture

Charts only tell you how we got here - they are mostly useless as predictive devices.

Then consider the subject of the quality of the inputs used to make them.

Doesn't take that many bad (manipulated) inputs to create meaningless wiggly lines.


orangegeek's picture

shrinking economies, rising PMIs


makes sense to me - as a pathological psychotic bull fucking shitter!!!!!