The PMI recovered some lost ground in August but at just 51.0, up from 50.1 in July, the index only pointed to a very modest rate of expansion.
On the positive side, output (54.6) had another good month and growth here was also up versus the previous period (53.6). However, backlogs (50.8) were just marginally above the 50 expansion threshold and the decline in quantity of purchases (42.8) steepened significantly. Both stocks of purchases (43.1) and of finished goods (45.5) also contracted and headcount (48.2) was reduced further. In addition, purchase prices (48.7) fell for a third successive month although at a slightly reduced pace than at the start of the quarter.
Overall then the signs are that industrial activity has all but ground to a standstill. Most worrying is the weakness of the more forward looking components which, if accurate, point to a potentially sharp deceleration in output growth over coming months. With prices still in decline, the SNB cannot be happy.
The Association for Purchasing and Supply Management's Purchasing Managers' Index (PMI) is produced in conjunction with Credit Suisse. The PMI provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector of purchasing managers. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting).
The PMI is very sensitive to the business cycle and tends to match growth or decline in the economy as a whole. To construct the PMI the Swiss Association of Purchasing and Materials Management conducts monthly surveys of purchasing executives on their performance in the current month versus the previous period. Because the amount of materials ordered by purchasing managers parallels the level of manufacturing production, the PMI is a gauge of production growth. The results are indexed with a centerline of 50; values above 50 indicate expectations of expansion and values below 50 indicate expectations of contraction for the manufacturing sector.