• Economy

7 days of Economics: Decline of manufacturing sentiment slows down

William De Vijlder
William De Vijlder
Group Chief Economist BNP Paribas
  1. Since the end of 2017, most countries have witnessed a decline of the Markit PMI index for the manufacturing  sector
  2. The pace of decline is slowing however in the past 3 months compared to the previous 3 months
  3. This and  the still high level of the index in many countries point towards an ongoing satisfactory growth pace 

Although the manufacturing sector represents a shrinking part of  economic activity, its cyclical nature makes it a useful indicator in  checking the pulse of the economy. To this end, the Markit PMI is an  often used indicator. In the vast majority of countries, it has  witnessed a decline since the end of last year. Looking at chart 1, the  biggest change occurred in Turkey, which is not a surprise given the  market tensions in recent months. Most eurozone countries saw a  decline in manufacturing sentiment. In some cases (Germany,  France, Italy, Austria) and for the eurozone as a whole, the drop was  significant but this occurred after having reached very high levels  towards the end of 2017. Indeed, for most eurozone countries, the  current levels remain well above 50 (the borderline between  expansion and contraction in the manufacturing sector). Italy is an  exception with the index at 50.1. In the rest of the world, sentiment  remains above 50 as well in most countries.

For the US, the commonly used indicator is provided by the Institute  for Supply Management. Since December 2017, the manufacturing  ISM index has been fluctuating in a rather narrow range, between 537.3 (last April) and 61.3 (August). The August number represents a  .2 percentage points increase from July. The same can’t be said for  most other countries: chart 2 shows that the average monthly change  in the past 3 months is still negative in most cases although less than  over the past 6 months.

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