J.P.Morgan Global All-Industry PMI $JPM

A modest step up in services
J.P. Morgan’s all-industry PMI output index—which is a proxy for global GDP growth—rose slightly to 53.6 in February
from 53.2 in January. Taken at face value, the February level would appear to be consistent with GDP growth
of about 2.6% annualized. However, the global PMI undershot GDP growth by an average of 1.4% pts over the three
quarters from 2Q09 to 4Q09. This track record suggests that global GDP growth may well top 3% this quarter.

The manufacturing and service sector PMIs moved in opposite directions last month, which accounts for the small
change in the all-industry PMI. The global manufacturing PMI retreated in February, although the latest survey was
very strong, especially the output and new orders components.

Moreover, the continued advance of the manufacturing PMI’s employment and inventory indexes heralds a
new phase of the industrial cycle. Whereas the global manufacturing PMI has been sitting at a high level for many months, the recovery in the services PMI has been gradual and disappointing. The good news is that the global services PMI advanced in February; the bad news is that its current level remains quite low in relation to the manufacturing PMI and the likely growth rate
of global GDP. In a recent research note (“Global PMI not capturing full strength of economic recovery,” Global Data
Watch, Jan 29, 2010), we suggested that the services PMI might be understating growth for two reasons. The first is
that because the services PMI measures “business activity” rather than output, it may fail to capture important
shifts in inventory management. This is most problematic in the US, where the “services” PMI is actually a



J.P.Morgan Global All-Industry PMI