Chart of the week
Flash PMI indices are showing sharp rebounds from April’s abyssal depths. The composite PMI (1) for May rose from 13.6 to 30.5. The rebound in the services component is spectacular: after plummeting from 52.6 in February down to only 12 in April, it recovered to reach 28.7 in May. This remains a particularly weak number, especially given that the low point in February 2009 was 39.2. The manufacturing PMI rose from 33.4 to 39.5, a level and pace in line with 2009.
Our analysis
During typical recessions, the manufacturing sector tends to undergo much greater volatility than services. This time, however, the social lockdown measures have resulted in the services sector indices falling furthest. The gradual easing of lockdown arrangements is being reflected by an equally gradual pick-up in activity, which should push the PMI indices to improve further in the months ahead.
The PMI indices are usually closely correlated with economic growth, but this is unlikely to hold true in the months ahead as the traditional cyclical mechanisms will not be the only factors at play in the economy.
(1) The Purchasing Managers’ Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
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The opinion expressed above is dated 25 May 2020 and is liable to change.
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