Manufacturing PMI deteriorated further in April. The HSBC PMI manufacturing index remained below the breakeven 50 between growth and contraction. The April reading was 48.9, down from 49.6 in March. Total new orders declined at the strongest pace for a year while production levels stagnated. Data suggested that relatively weak domestic demand was the main driver of reduced new business, as new export work picked up in April (albeit marginally). As a result, employment in the sector continued to decline, while purchasing activity fell at the quickest rate in 13 months. Meanwhile, deflationary pressures intensified in April, with both input and output costs falling at accelerated rates.
A number of panelists commented on relatively subdued market conditions and an associated downturn in client demand. Data suggested that fewer new orders were largely driven by weaker domestic demand, as new export work increased over the month, albeit at a marginal rate. Weaker demand conditions led companies to become more cautious with regard to their production schedules, with firms leaving their output unchanged in April. This contrasted with increased output in the opening three months of the year.
Purchasing Managers' Manufacturing Index (PMIs) is based on monthly questionnaire surveys of selected companies which provide an advance indication of what is really happening in the private sector economy by tracking changes in variables such as output, new orders, stock levels, employment and prices across the manufacturing sectors.
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
The Markit PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.
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