May's flash manufacturing PMI remained mired in contraction with a reading of 49.1 which was an improvement over April's reading of 48.9. The output index which was at the breakeven point between growth and contraction in April, skidded to a reading of 48.4. New orders decreased at a slower rate while new export orders declined after increasing in April. Five sub-indexes decreased but at a slower rate. These included employment, output and input prices, backlogs of work and stocks of purchases.
The flash PMI pointed to further deterioration in operating conditions, with production declining for the first time in 2015 so far. Softer client demand, both at home and abroad, along with further job cuts indicate that the sector may find it difficult to expand, at least in the near term, as companies tempered production plans in line with weaker demand conditions.
China started 2015 by growing at its slowest quarterly pace since 2009. The latest signs have underscored a lack of momentum this quarter. Retail sales slowed to their lowest since 2006 in April, while industrial output missed forecasts and exports and imports both contracted in April.
The flash 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. The flash estimate is released about 10 days prior to the final PMI, which is posted usually on the first of the month.
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. The flash estimate gives investors an advanced look at what to expect on the first of the month.
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