Manager Expectations & Economic Recovery

Michael Rudd, CFA | President, CEO and Portfolio Manager

This past week, we noticed data from European and North American countries which indicated that managers in developed markets continue to have high expectations for economic recovery. This is indeed good news and we thought we would share some of the data that we look at on a regular basis. There are a number of different data points, including coincident and leading indicators, put out for a number of reasons by different providers. They are useful but because they are produced independently and by different companies, the constriction and survey methodology can be different leading to difficulty in compatibility across the data points. One data series that we like is called the Purchasing Managers’ Index (PMI). It is put out by IHS Markit, a British company that “provides independent data, trade processing of derivatives, foreign exchange and loans, customized technology platforms”. In short, they are a quantitative data company that helps investors and investment banks.

The PMI consists of several different surveys of purchasing managers from businesses in manufacturing or services. IHS asks questions of 400 companies for 20 segments of their businesses and managers mark 1 for improvement, 0.5 for no change and 0 for deterioration. They do this every month for each country. The data is compiled together and a score above 50 indicates expected improvement over the coming months, while a score below 50 indicates contraction.

  • Figures 1 and 2 present PMI data that came out this week for various countries segmented by manufacturing and service type companies. As you can see, manufacturing had a much lower drop during COIVD and has bounced back harder. Service companies, on the other hand, had a much harder time. Global manufacturing is bouncing back in Europe and the UK and services are very strong in the United States.

“This means that” the global economy is recovering and manager expectations continue to be positive, particularly on the manufacturing side. Services are a little slower to recover other than in the US where they are very strong and driving the economy, as a whole, higher. This does makes sense given the stricter lock down measures in Europe.

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