August manufacturing PMI continued to decline for a sixth straight month. The drop accelerated to a reading of 47.1, down from 47.8 in July which was a two year low. Output decreased at a faster rate, down to a reading of 46.6 from 47.1 the month before. Ten of 12 categories declined, mostly at a faster rate. The only increases were of backlogs of work and stocks of finished goods.
The data suggest that the economy continues to struggle for momentum in August. Data for July has already shown exports were down more than 8 percent year-on-year. Meanwhile, industrial production slowed to a year-on-year pace of 6 percent, its weakest since April, while retail sales grew at a 10.5 percent pace, slowing from a 10.6 percent pace in June.
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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