Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

CHINA COMPOSITE PMI UP ON STRONGER SERVICES

HSBC China Composite PMI™ data (which covers both manufacturing and services) signalled a fourth successive monthly increase of Chinese business activity during August. The HSBC Composite Output Index posted at 52.8, up from 51.6 in July, and signalled a robust rise in activity levels. Furthermore, it was the strongest expansion of business activity in 17 months.

The improvement in the headline index largely reflected the growth recovery recorded in the service sector, as production growth slowed at manufacturing firms. Service sector business activity expanded at the fastest rate since March 2013, and contrasted with a stagnation of activity in the previous month. This was signalled by the HSBC China Services Business Activity Index posting at 54.1, up from the record low of 50.0 in July.

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Activity growth was supported by further expansions of new business at both manufacturers and service providers in August. That said, the rate of new order growth at manufacturers eased to a three-month low. Meanwhile, service sector firms recorded a solid expansion of new business that was the strongest since January 2013. At the composite level, new work rose at a moderate pace that was slightly faster than in July.

August data continued to point to divergent trends in employment across both the manufacturing and service sectors. Staffing levels fell for the tenth successive month at goods producers, and at a modest pace, while service providers noted a further moderate expansion of payroll numbers. Overall, employment at the composite level fell marginally over the month.

Manufacturers signalled the third monthly rise in outstanding business in August, albeit only slight. In contrast, backlogs of work at service sector firms fell for the second straight month and at the quickest rate since November 2012. Consequently, unfinished work declined slightly for the second month running at the  level.

Average input costs continued to increase at service providers in August, while manufacturers signalled a renewed fall in cost burdens. The rate of input price
inflation in the service sector was slower than in July and moderate overall. As a result, input costs rose at a marginal pace that was the weakest in three months at the composite level.

Output charges set by manufacturers fell slightly in August, offsetting a slight increase in July. Meanwhile, service sector firms raised their selling prices for the first time since March, albeit fractionally. Anecdotal evidence suggested that stronger client demand had led to increased pricing power in the sector. At the composite level, output prices fell marginally over the month.

August survey data signalled that Chinese service providers were confident toward the 12-month business outlook. Furthermore, the degree of positive sentiment
strengthened to a five-month high.

U.S. MANUFACTURING PMIs RISE ON STRONG ORDERS

U.S. manufacturers indicated a strong improvement in overall business conditions during August, driven by faster rises in output, new orders and payroll numbers. The latest survey also signalled a boost to production schedules from greater export sales, with new work from abroad increasing at the steepest pace for three years.

At 57.9 in August, up from 55.8 in July, the final seasonally adjusted Markit U.S. Manufacturing PMI remained well above the neutral 50.0 value. Moreover, the latest headline PMI reading indicated the sharpest improvement in business conditions since April 2010.

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August data indicated a further steep increase in production volumes, driven by a sharp and accelerated expansion of incoming new work. The latest rise in new orders was the second-fastest since April 2010. Anecdotal evidence cited improving domestic economic fundamentals as well as stronger export demand.

Backlogs of work increased at manufacturing firms in August, as has now been the case in each of the past seven months. As a result, manufacturers boosted their payroll numbers over the month, with the rate of employment growth accelerating to its sharpest since March 2013.

imageStronger inflows of new work and increased production volumes contributed to a sharp and accelerated rise in input buying during August. The latest expansion of purchasing activity was the fastest since the survey began, which placed some pressures on suppliers’ lead-times. Latest data indicated that vendor performance deteriorated for the fourteenth month running and at the most marked rate since the weather-related delays seen in February.

Reports from survey respondents suggested that the improving demand environment resulted in efforts to boost stocks in August. Pre-production inventories and stocks of finished goods both increased at the fastest pace in the survey history.

Strong demand for raw materials and higher transportation costs contributed to a robust increase in average input prices in August. That said, the overall pace of cost inflation slipped to a three-month low. Meanwhile, factory gate price inflation was little-changed from July’s seven-month high.

August data suggested that large manufacturers (500+ employees) experienced the fastest expansion of production volumes, helped by a sharp and accelerated expansion of new export sales.

Small manufacturers (1-99 employees) saw the slowest increases in both output and payroll numbers during the latest survey period.

Robust improvements in operating conditions were recorded in all three market groups monitored by the survey (consumer, intermediate and investment goods). Consumer goods producers posted the fastest expansion of production levels. However, intermediate and investment goods producers registered the steepest increases in employment numbers.

ISM Manufacturing Hits a Three Year High

Today’s release of the ISM Manufacturing report for August showed a nice pick up for the manufacturing sector in the month of August.  While economists were expecting a level of 57.0, the actual reading came in at 59.0.  This was up from 57.1 in July and was the highest level since March 2011.  For some perspective on August’s reading, there have only been 20 months in the last 30 years where the headline reading has been above its current level.

The table below breaks down this month’s ISM Manufacturing report by each of its sub-indices.  Here, we saw broad-based strength as seven out of ten components saw month over month increases.  This month’s reading of 64.5 for the Production component was the best since May 2010, while the New Orders component rose to 66.7; that was the best reading for that component since April 2004!  On the downside, the only three components that saw m/m declines were Supplier Deliveries, Employment (just a slight decline), and Prices Paid.  Finally, on a y/y basis this month’s report also saw broad based strength with eight out of ten components showing accelerating rates of growth.