Thursday, January 7, 2010

J.P.Morgan Global All-Industry PMI

Services PMI rises but still lags expectations Both J.P. Morgan’s global services and manufacturing PMIs advanced in December, but their combined gain fell short of the level consistent with our global GDP growth forecast. As reported Monday, our global manufacturing
PMI output index rose 1.4 pts to 58.2, a very elevated level that points to continued boom conditions in the manufacturing sector.

Today’s new information concerns activity in the global service sector. Our services PMI output index posted an even larger gain of 1.8 pts, but from a much lower base, so that it ended 2009 at a level of just 52.1. The shortfall in the service sector was widespread. Services PMIs in the US, the Euro area, Japan, China, India and Russia all lie below their 2006-07 averages. The gaps are especially large in the US and Japan, whereas they are more modest in the EM. The US gap is especially significant, since the US accounts for about 40% of the global services PMI and about 1/3 of the global all-industry PMI.

Taken alone, this unbalanced picture of booming manufacturing and sluggish services poses downside risk to our global GDP growth estimates of 3.7% in 4Q09 and 3.4% in 1Q10. Indeed, at 53.4, the PMI all-industry composite output index, points to growth of about 2.5%. With that said, it is important to note that the all-industry PMI output index understated global GDP growth in both 2Q09 and 3Q09 by an average of 1% pt (saar). Thus, the implied 4Q
error of 1.3% pts is not very different from what was seen in the previous two quarters. One possible explanation for this persistent error is that the growth of service activity is strong but concentrated in a small number of industries, [jp morgan]

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