World PMI Update: Weakness in Europe?

Manufacturing growth throughout the world increased at a solid, if unspectacular pace in July, the preliminary releases of the Markit PMIs show. The chart shows manufacturing PMIs across many of the more important countries in the world, the rightmost column, July 2014, is the preliminary data released July 24.
The highlights of the July data:

  • The US Markit PMI (top line in the chart) fell slightly. The relationship between this reading and the more familiar ISM PMI is uncertain, and it is best to think of these numbers as two different noisy readings of the same phenomena. At Astor, our assessment is that the US economy continues to expand
  • The rate of growth increased in China to a new high over the rolling 12 months. There is still concern about the outlook for Chinese growth this year.
  • The French PMI has fallen four months in a row to concerning levels, the lowest in Europe according to this selection of countries.
  • A few points about broader trends:

  • There may be some weakness showing up in Eastern Europe. It is not clear if this is directly to do with the tensions in the Ukraine this year, but the data we have is all for June, not reflecting the recent deterioration. For a more positive take on European growth see this Bloomberg report.
  • South Korea has been slowing a bit too, as the government recognized with a stimulus package
  • In conclusion, no major changes to our assessment though the Investment Committee continues to keep a concerned eye on the details of growth in Europe.

    Yellen testimony confirms view of labor market slack

    Fed Chair Janet Yellen gave her semi-annual report on monetary policy to the Senate today. Its content is consistent with our interpretations of both monetary policy and the labor market. The key phrase from our standpoint is:

    “we currently anticipate that even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the federal funds rate below levels that the Committee views as normal in the longer run

    We interpret this to mean a delayed and slow increase in short term rates, starting perhaps in the second quarter of 2015.

    Secondary labor market indicators show improvement, slack

    From time to time we also like to highlight some secondary labor market indicators to gain a deeper insight into the economy. The chart below shows both labor market improvement as well as continuing slack.


    The red line shows the quit rate, the percentage of the labor force quitting each month. It is at its post-recession highs but still well below where it was in the last recession, telling us that employees are becoming somewhat more confident about finding another job but there is still concerns about the demand for labor. The green line is job openings as a percentage of the labor force, which is about as high as it was before the last recession. Logic suggests that these openings will be filled in the future. Finally, the blue line shows the percentage of the labor force which is working part time, involuntarily (people who would take a full time job if they could find one). While much improved, this measure shows substantial slack left in the labor force beyond the unemployment rate. About 2.9 million part time workers would need to be made full time for the rate to return to the 3% level we saw from 20002 to 2007.

    Tech stocks weigh on S&P 500: MarketWatch Live Blog ft. Rob Stein

    Rob Stein, CEO of Astor Investment Management said that Tuesday’s pullback is mostly due to technicals rather than fundamentals. “When markets reach new peaks, investors tend to take opportunity and lighten up and rebalance. We think the economy is in its mid cycle and has more room to grow. All recent economic data point to acceleration. In this environment the our risk reward model is still favoring stocks with the good return for the next several quarters.” (READ MORE)