Managers Feeling Upbeat, Employment Strong
Regular readers know that we have been closely following Purchasing Managers Indices (PMIs) and labour data to get a view on the health of the global economy. This week, during our morning call, we discussed multiple data points and felt they were worth mentioning. Please see Figure 1 for a cross section of recent PMIs from around the world.
- PMIs in Asia, as a generalization have moved past 50. India is particularly strong. This demonstrates that managers in this huge block of the global economy are expecting to expand their business over the next 6 months.
- PMIs in North America are also over 50. Manufacturing in Mexico is strong as well. Another very large grouping of the global economy.
- PMIs in Europe are still in contraction mode but have clearly moved higher than 6 months ago. While we are still skeptical of the business situation in Europe, the trend is clearly positive. We believe that this also is more constructive for the global economy.
- This week strong employment data was also released from a number of different sources. US and Canadian Payrolls far exceeded expectations and significant job openings remain in the US, which was unexpected.
“This means that” the strength in the employment market spooked the bond market today as evidenced by the change in yields (Figure 2). It appears that financial markets are building in expectations that the US central bank will again raise rates towards the end of the year. From our view, it appears that a recession in the short term has been averted. The question remains whether central banks will become too restrictive in their fight against inflation.
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