The November PMI was surprisingly strong. At 56.6, the headline index was up nearly two full points versus its October reading, its fourth increase in a row and its highest level since February 2014. Indeed, November's mark all but puts the economy into a period of boom.
Output (59.9 after 58.0) was especially robust and posted its best outturn since August 2015. Moreover, this was supported by a surge in backlogs (59.2 after 55.6) that should ensure further sizeable gains over the coming months. Similarly, the quantity of purchases index (58.1 after 51.5) pointed to improving confidence in the business outlook and, combined with another deterioration in vendor performance (delivery times 57.7 after 56.7), suggests that the first large increase in prices in five years (58.1 after 52.8) may well not be the last. Employment (52.2 after 50.2) painted much the same bullish economic picture.
The monthly PMIs can be quite volatile so it will be very interesting to see how the December report fares. However, as November stands it looks as if fourth quarter GDP could surprise significantly on the upside. With inflation also finally showing signs of a return, the SNB must have a smile on its face.
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.