Apple’s Growth Scorecard for the first quarter of 2012

Wednesday, April 25th, 2012

For Apple 2012 started with almost the same growth as 2011 started. Q1 2011 saw earnings growth of 92% and Q1 2012 saw growth of 94%. As the following revenue growth table shows, the pattern for the last twelve months has been very consistent:

Here are some notes:

• The iPad is growing at a faster rate than the iPhone and has achieved in two years what the iPhone took four.
• The iPhone grew units at nearly 90% and revenues at 85%. This is slightly below the quarterly average over the last two years of 99%
• The Mac showed significant weakness though the previous year’s Q1 had exceptionally high growth of 32%. The Mac still grew faster than the market and therefore gained share
• The iPod is declining consistently. Units showed a lesser decline than revenues as the average price dropped from $164 to $157.
• The iTunes store continues to grow very rapidly, reaching a new record level above $2.1 billion revenues
• Peripherals were weak with 11% growth but that may have something to do with lowered Mac sales
• Software had good quarter though not exceptional
• The top line grew at nearly 60% which is not exceptional but the bottom line grew at 94% which is above average

Overall, the company had a very good quarter and showed consistency, which, incidentally, implies predictability. The following graph shows the top and bottom lines in historical context with color coding matching the table above.

Tags: Bottom Line, Bottom Lines, Color Coding, Consistency, Earnings Growth, First Quarter, Graph, Historical Context, Ipad, Iphone, Itunes, Mac Sales, Peripherals, Predictability, Previous Year, Q1, Sales Software, Scorecard, Twelve Months
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Growth Falters, with Exception of Japan – Global PMI Scorecard (Oct 2011)

Monday, November 7th, 2011

Growth in global economic activity faltered in October after accelerating in September. The global manufacturing sector slipped into recession territory while growth in the services sector slowed markedly.

The JP Morgan Global Composite Index fell to 51.4 after rising to 52.0 in September from 51.5 in August. The drop in the composite PMI is mainly attributed to a significant drop in my calculated GDP-weighted PMI for the Eurozone to 46.6 from 48.7 in September. Germany’s composite PMI at a 27-month low indicates that economic activity in the private sector has virtually stagnated while economic activity in France, Italy and Spain at 28 to 30-month lows has contracted severely. Growth in the U.K. weakened considerably to stagnation levels.

My GDP-weighted Composite ISM PMI for the U.S. in October eased to 52.4 from 52.7 in September, indicating continued but below-par growth.

Growth in China also eased on a non-seasonally as well as a seasonally adjusted basis.

Japan was the exception to the rule among developed economies. According to Markit, Japanese private sector activity rose for the first time since February as the composite output index breached the neutral 50.0 threshold. The composite PMI jumped from a contracting 47.0 to a highest reading of 52.4 since data were first compiled in September 2007.

Economic activity in emerging economies improved somewhat. Brazil has returned to growth again. Growth in India and Russia edged up marginally while the contraction in Hong Kong eased markedly.

Sources: Markit; CFLP*; ISM**; US Business Activity Index***; Plexus Asset Management.

The JP Morgan Global Services PMI for October eased to 51.8 from 52.6 in September on the back of a significant deepening in the contraction in the Eurozone and especially France, Italy and Spain. The Germans are holding out, though, and have managed to eke out some growth from contracting in September. The services sector in the U.K. continues to exhibit some growth but at a reduced rate, while growth in Ireland accelerated slightly. Australia’s services sector is under the water again while growth in the services sector in China is weakening. The U.S.’s ISM non-manufacturing PMI continued its slightly weaker trend with the PMI marginally lower at 52.9 from 53.0 in September. However, it surprised the market on the downside as the consensus was for a rise to 53.5. The Business Activity Index fell sharply from a robust 57.1 to 53.8.

Among the BRICS countries Brazil made a huge turnaround as its services PMI jumped to 53.6 from 50.5 in September. Russia experienced a slight acceleration in growth but the contraction in India’s services sector has deepened.

Tags: Activity Index, Adjusted Basis, Brazil, Business Activity, Composite Index, Composite Output, Contraction, Emerging Economies, Eurozone, Exception To The Rule, Global Economic Activity, Global Services, India, Ism, Jp Morgan, Lows, Manufacturing Sector, Output Index, Private Sector Activity, Scorecard, Services Pmi, Stagnation
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Global PMI Scorecard: Growth Accelerating

Monday, June 13th, 2011

Despite the markets showing their dismay when the manufacturing PMIs for May were published, the pace of expansion in the global economy has actually picked up! The JPMorgan Global Composite PMI, which takes the manufacturing and non-manufacturing/services into account, rose to 52.6 from 51.8 in April (a number above 50 indicates expansion) as the turnaround of Japan since the twin disaster seems to be lending solid support.

The contraction in Japan has eased significantly, with the Markit composite PMI jumping to 46.2 from 35.0 in April.  Growth in the US eased slightly with my ISM GDP-weighted composite PMI registering 54.3 compared to April’s 54.6. The manufacturing and non-manufacturing PMIs reversed roles – the non-manufacturing PMI jumped to 54.6 from 52.8 while the manufacturing PMI sank to 53.5 from a very robust 60.4. Growth in the Eurozone’s economy at long last eased with my GDP-weighted PMI coming in at 55.2 compared to 57.1 in April. Although the pace of growth in both Germany and France has eased, these countries continue to find themselves growing at a rapid pace. Elsewhere the pace has eased somewhat in China, the UK, Hong Kong and India.

Sources: ISM, Markit, CFLP, Plexus Asset Management.

Except in the case of Japan, where the manufacturing sector expanded again after reeling in the face of the twin disaster, growth in the global manufacturing sector has eased significantly. My GDP-weighted manufacturing PMI for the major economies dropped by 2.4 points to 53.1 in May.

The USA’s manufacturing sector was hit the hardest, succumbing 6.9 index points, followed by Germany’s 4.3 and the Eurozone’s 3.4 index point declines. The manufacturing sectors in the Eurozone’s problem countries are struggling, though. The contraction in Greece has deepened, Spain has moved into contraction while Ireland’s PMI fell heavily from 56.0 to 52.1. China’s CFLP manufacturing PMI was in line with my earlier expectations based on seasonal weakness. Brazil was the only economy that managed to eke out a faster rate of expansion.

Sources: Markit*; Li & Fung**; Plexus Asset Management****; ISM*****

Non-manufacturing/Services PMIs

The JPMorgan Global Services PMI for May jumped to 52.5 from 51.0 in April.

The US ISM non-manufacturing PMI retraced 1.8 index points of the 4.5 index point drop in April. The Eurozone PMI dropped by 1.3 index points to 55.4 from 56.7 in April, with the countries other than Germany and France taking the biggest knocks. Growth in Italy’s services sector has decelerated sharply, whereas Spain and Ireland continue to find themselves on the brink of contraction. Growth in the UK’s services sector eased slightly to 53.8 from 54.3 in May. The pace of contraction in Japan has eased significantly by 8.8 index points to 43.8 in May from 35.0 in April. Australia’s services sector is contracting again.

Sources: ISM, Markit, CFLP, Plexus Asset Management.

Tags: Asset Management, Brazil, Contraction, Disaster, Dismay, Eurozone, GDP, Global Economy, Greece, Hong Kong, Index Point, Index Points, India, Ism, Manufacturing Sector, Manufacturing Sectors, Manufacturing Services, Pmi, Pmis, Rapid Pace, Scorecard, Turnaround
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Global PMI Scorecard: Growth slowing sharply!

Monday, May 9th, 2011

The PMIs for April indicate that, while the global economy is still expanding, the pace has moderated considerably. The JPMorgan Global Composite PMI, where the manufacturing and non-manufacturing/services are both taken into account, dropped to 51.8 from 54.7 in March (a number above 50 indicates expansion) due to the ripple effect of the contraction of Japan’s economy following the twin disaster in that country.

The contraction in Japan has worsened with the Markit composite PMI falling to 35.0 from 36.1 in March as both the manufacturing and service sectors contracted further. Economic activity in the US has slowed significantly with my ISM GDP-weighted composite PMI at 54.6 the lowest since September last year. Despite the fact that the manufacturing PMI held up reasonably well at a robust 60.4 compared to 61.2 in March, the non-manufacturing PMI sank to 52.8 from 57.3. The Eurozone’s economy remains resilient, though, with my GDP-weighted composite PMI coming in at 57.1 compared to 57.3 in March. France’s robust economy continues to accelerate at an increasing rate, while Germany’s robust growth rate has moderated slightly. The UK and Hong Kong also felt the aftershocks as their composite PMIs moderated strongly.

*Japan is off the screen due to the impact of the disaster on the numbers.

Sources: ISM; Markit; CFLP; Plexus Asset Management.

Despite a slight easing, growth in the global manufacturing sector held up well, except in the case of Japan where the contraction deepened. My GDP-weighted manufacturing PMI for the major economies dropped 0.5 points to 55.5 in April – the lowest in four months.

The pace of expansion in the USA’s manufacturing sector eased slightly to a still robust 60.4 in April from 61.2 in March. The manufacturing sector’s pace in the Eurozone accelerated to a buoyant 58.0 from 57.5, with stronger growth in France and Germany in particular. Greece continues to see a further moderation of the contraction in its manufacturing sector, but Spain is approaching contraction again. Ireland’s expansion is holding up well, but the moderation in the UK’s manufacturing sector intensified with the PMI dropping to 54.6 in April from 57.1 in March. This compares to a robust 61.5 in February.

As argued in a previous article, I think the moderate decline from 53.2 to 52.9 in China’s CFLP manufacturing PMI is rather flattering. April is normally a seasonally “high” month and it therefore shows the great impact that Japan’s twin disasters is having on China’s economy and especially the manufacturing sector. The Japanese situation has also rubbed off on the manufacturing sectors of emerging economies such as Russia, Turkey, South Korea, Russia and South Africa.

Sources: *Markit; **Li & Fung; ****Plexus Asset Management; *****ISM.

Where the still relatively robust global manufacturing PMI numbers were likely to lead to improved global industrial production growth through end June, a hiccup is on its way.

Sources: Markit; Li & Fung; Plexus Asset Management; ISM; I-Net Bridge.

The immediate outlook for growth in industrial metal prices is therefore cloudy, especially in view of the possibility that the Chinese manufacturing industry could be significantly overstocked.

Sources: Markit; Li & Fung; Plexus Asset Management; ISM; I-Net Bridge.

Non-manufacturing/Services PMIs

The JPMorgan Global Services PMI for April sank to 51.0 from 54.0 in March after a robust 59.3 in February.

The US ISM non-manufacturing PMI fell to its lowest level since August last year to 52.8 from 57.3 in March after reaching a 66-month high of 59.7 in February this year. The Eurozone PMI moderated somewhat to 56.7, but the acceleration in the already robust services sector in France masked a significant drop in Germany’s PMI from 60.1 to 56.8 in April. Spain managed to eke out some growth, but Ireland again teeters on the brink of contraction. Growth in the UK’s services sector eased materially to 54.3 from 57.1 in March, while the pace of contraction in Japan increased. The rate of expansion in the services sectors of India and Russia quickened, though, while the robust pace of growth in China’s non-manufacturing sector came in at the upper level of the April seasonal high. The contraction in Australia’s services sector ended with the PMI increasing to 51.5 from 46.5 in February.

*Japan is off the screen due to the impact of the disaster on the numbers.

Sources: ISM; Markit; CFLP; Plexus Asset Management.

Summary

US economy: GDP growth accelerating

My GDP-weighted ISM PMI for the US leads US real GDP growth by a quarter. The advance estimate of first-quarter GDP growth came in at 2.3% compared to my estimate of 3% on a year-ago basis. I do think, however, that the actual number may come in closer to 3%. I initially thought that, if the robust manufacturing and non-manufacturing PMIs held up through end June barring any fallout of the Japanese disaster, the year-on-year GDP growth could reach 4% and beyond in the second quarter, but the fallout has shown its hand. If there is no further deterioration in the PMIs, I am of the opinion that second-quarter growth could come in at approximately 3.0 to 3.5%.

Sources: ISM; FRED; Plexus Asset Management.

Eurozone: GDP growth to gain momentum in Q2

The PMIs during the fourth quarter of last year indicates that GDP growth in the first quarter is likely to come in at approximately 2.5% compared to a year ago and to accelerate to 3% in the second quarter.

Sources: Markit (various internet sources); I-Net; Plexus Asset Management.

China: Still going strong!

My GDP-weighted PMI for April was virtually unchanged from last year’s level despite China’s disappointing manufacturing PMI that fell to 52.9 from 53.4 in May, principally as a result of the aftershocks of Japan’s twin disasters.

Sources: CFLP; Plexus Asset Management.

From a forecasting point of view, the CFLP manufacturing PMI gives a better picture of underlying GDP growth due to lower seasonality. China’s year-on-year GDP growth of 9.8% in the first quarter of this year was in line with my estimate of 10% based on the manufacturing PMI’s trend in the last quarter of last year. It is evident to me that China’s year-on-year GDP growth in the first quarter is still running at between 9.5% and 10%.

Sources: Dismal Scientist; Li & Fung; Plexus Asset Management.

Japanese economy: to get worse before recovering?

In Japan the jury is out on what impact the twin disasters will have on the economy. The manufacturing sector is holding up reasonably well, but this may give a distorted view of the eventual impact on the economy, especially in view of the severe contraction in the services sector.

Sources: Dismal Scientist; Markit; Plexus Asset Management.

UK economy: Continuing to gaining traction…

First-quarter GDP growth came in at 1.8% compared to my estimate of approximately 2.0% year-on-year based on my GDP-weighted PMI. It is evident that growth in the second quarter will accelerate to approximately 2.5% to 3.0%, but the fallout from the Japanese disaster may shave 0.5% off this number.

Sources: Markit; Dismal Scientist; Plexus Asset Management.

Conclusion

The onset of a declining trend in the Global PMIs is now a fact. The flock of black swans in the global pond is growing and there is no evidence yet that conditions may be easing. The situation has been expanded by the terrible natural disaster in Japan, and exacerbated in the short term by the killing of Osama bin Laden. The geopolitical situation in the Middle East and North Africa is slightly improving, but is likely to put a floor under oil prices. The PBoC has again tightened its monetary policy, but my hunch is that more needs to be done to reign in the Chinese economy and especially the services sector. The potential contagion of the debt crisis in the Eurozone and the impact of austerity measures on the Eurozone economies are still major uncertainties. These black swans and their evolvement are likely to continue to drive markets and influence and prescribe the policies of central bankers globally.

Tags: Aftershocks, Asset Management, Contraction, Disaster, Economic Activity, Eurozone, Four Months, GDP, Global Economy, India, Ism, Manufacturing Sector, Manufacturing Services, Moderation, Pace, Pmis, Ripple Effect, Robust Economy, Robust Growth, Scorecard, Service Sectors
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10 Predictions for 2011: Scorecard So Far (Doll)

Tuesday, April 12th, 2011

by Bob Doll, Chief Equity Strategist, Fundamental Equities, BlackRock

The predictions business is always fraught with uncertainty, but although it is still very early in the year, most of our predictions appear to be on track. The economic environment continues to improve, stocks (particularly US stocks) have been performing well and investor flows into equities have been accelerating.

1. US growth accelerates as US real GDP reaches a new all-time high.
There certainly are some downside risks to economic growth, but we are feeling pretty good about this prediction as of now. We continue to believe that US GDP growth will accelerate and come in at roughly 3.0% to 3.5% for all of 2011. More importantly, we believe the components of growth will be higher quality than last year (with increasing evidence of real final sales rather than inventory accumulation) as the economy exits recovery mode and heads into expansion.

2. The US economy creates 2 million to 3 million jobs in 2011 as unemployment falls to 9%.
Among all the components of the economic recovery, the labor market has remained one of the most stubbornly weak for almost two years now. Leading labor market indicators, including jobless claims, profit trends and lending standards, have been pointing in a positive direction for some time, but these trends are just now starting to translate into actual hiring. The most recent report (for March) showed an increase of more than 200,000 new jobs and the unemployment rate has already fallen below 9%. There is still a great deal of healing to do that will take some time, but we believe the trends are pointing in the right direction.

3. US stocks experience a third year of double-digit percentage returns for the first time in over a decade as corporate earnings reach a new all-time high.
Notwithstanding the mid-quarter correction, markets are off to a strong start for 2011, and are already more than halfway there in terms of reaching double-digit gains. While we expect to see continued volatility and cannot rule out additional corrective action along the way, we remain optimistic about the path of equity markets. Corporate earnings reports continue to be better
than expected and our belief is that they will hit a new all-time high in the third quarter.

4. Stocks outperform bonds and cash.
With cash likely to continue returning little more than zero, any positive returns for equities will mean they beat cash. Additionally, given our forecast for continued improvements in economic growth, we think stocks are likely to continue to outpace bonds as well.

5. The US stock market outperforms the MSCI World Index.
This prediction has certainly come true so far. The S&P 500 Index has returned 5.9% on a year-to-date basis compared to 4.8% for the MSCI World Index. When compared to other regions, the US economic recovery continues to be stronger, and corporate earnings in the United States also have been ahead of the pack. We maintain our conviction that this prediction is likely to come to pass as Europe continues to struggle with some serious debt-related issues and Japan deals with the damage and uncertainties wrought by the earthquake.

6. The US, Germany and Brazil outperform Japan, Spain and China.
Although we have certainly gotten the US and Japan components of this prediction right so far, on an equal-weighted basis, we are slightly behind on this one as of now. Germany has been held back by the region’s sovereign debt issues, although, ironically, Spain has performed well coming out of the doldrums of last year. Brazil has been struggling with the strengthening of its currency, which has hurt exports, while Chinese stocks have (so far) managed to overcome inflation issues. Time will tell as to how this prediction shapes up at year-end.

7. Commodities and emerging market currencies outperform the dollar, euro and yen.
In most cases, commodities are off to a strong start for the year. Oil prices are clearly higher and gold prices ended the quarter at a new record price of $1,439 per ounce. Other commodities, including industrial metals, were mixed for the quarter. From a currency perspective, the value of the US dollar has been pushed lower in recent months and, notwithstanding the post-earthquake spike, the value of the yen also has been falling. While the euro has been showing some strength, emerging markets currencies in general have been outperforming.

8. Strong balance sheets and free cash flow lead to significant increases in dividends, share buybacks, mergers and acquisitions (M&A) and business reinvestment.
So far, signs have been pointing to this prediction coming through as we expected. Corporate cash levels remain high and balance sheets are strong, which have allowed companies the ability to engage in healthy levels of all of these shareholder-friendly activities.

9. Investor flows move from bond funds to equity funds.
Although flows into equities paused somewhat when volatility became elevated during the brief market correction, the overall migration of fund flows from bonds to stocks has remained strong. This is a trend that we expect will continue through the course of 2011.

10. The 2012 presidential campaign sees a plethora of Republican candidates while President Obama continues to move to
the center.
In our opinion, President Obama indeed has been moving toward the center, as evidenced by the extension of the Bush-era tax cuts as well as other concessions he has been willing to make. As of now, it has been surprisingly quiet in terms of announced GOP presidential candidates, but we expect this will change in the months to come.

Download Full Report PDF

Copyright 2011 © BlackRock

Tags: Accumulation, Bob Doll, Brazil, China, Commodities, Corporate Earnings, Downside Risks, Economic Environment, Economic Recovery, Fraught With Uncertainty, GDP Growth, Gold, Jobless Claims, Market Indicators, Mid Quarter, New Jobs, oil, Positive Direction, Real Gdp, Recovery Mode, Right Direction, Scorecard, Strategist, Unemployment Rate, Will Take Some Time
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Global PMI Scorecard: Global Growth Still Strong but Moderating

Monday, April 11th, 2011

Manufacturing PMIs

The manufacturing PMIs for March indicate that the pace of the robust global manufacturing sector has moderated. My GDP-weighted PMI for the major economies fell to 56.0 from 58.2 in February.

The pace of expansion in the US eased slightly to a still robust 61.2 in March from 61.4 in February. The pace in the Eurozone also eased to 57.5 from 59.0 in February and easing was widespread. Greece, on the other hand, has seen a moderation of the contraction in its manufacturing sector. The UK’s manufacturing sector moderated relatively sharply from a robust 61.5 to 57.1.

As expected, the expansion in Japan’s manufacturing sector was halted as the impact of the terrible disaster is being felt. After registering its second consecutive month of expansion in February, the manufacturing PMI dropped from 52.9 to 46.4. The huge turnaround in Australia’s manufacturing sector in February came to an abrupt end in March with the PMI falling to 47.9 from 51.1. China’s manufacturing PMI rebounded from 52.2 in February to 53.4 in March, mainly due to seasonal factors. Taiwan failed to follow mainland China, though. The manufacturing sectors in emerging economies generally followed the weaker trend with South Africa (RSA), Russia and India the exceptions.

Sources: Markit; Li & Fung; Kagiso; ISM; Plexus Asset Management.

Sources: Markit*; Li & Fung**; Kagiso***; Plexus Asset Management****; ISM*****.

Sources: Markit*; Li & Fung**; Plexus Asset Management****; ISM*****.

Where the still relatively robust global manufacturing PMI numbers were likely to lead to improved global industrial production growth through end June, this year a hiccup is facing global industrial production in coming months, especially in light of the tragic events in Japan.

Sources: Markit*; Li & Fung**; Plexus Asset Management****; ISM*****; I-Net Bridge

The immediate outlook for industrial metal prices is therefore cloudy.

Sources: Markit*; Li & Fung**; Plexus Asset Management****; ISM*****; I-Net Bridge.

Non-manufacturing/Services PMIs

The JPMorgan Global Services PMI for March got hammered as it dropped to 54.0 from a robust 59.3 in February.

The ISM non-manufacturing sector in the US eased from a very robust 59.7 in February to 57.3 in March. In the Eurozone the robust services sectors of France and Germany upped the pace again, but elsewhere in the Eurozone the PMIs came in mixed. Spain again fell back into contraction while growth in Ireland’s services sector moderated sharply, finding itself on the brink of contraction.

March was characterised by a significant rebound of the UK services sector as the PMI rose to 57.1 from 52.6 in February. Japan’s services sector took a huge smack as the PMI dropped from 49.8 to 35.3 on the back of the disaster. The contraction in Australia’s services sector again deepened with the PMI falling to 46.5 from 48.7 in February.

In the emerging economies the robust expansion in India’s services sector has moderated slightly. China’s non-manufacturing PMI surged to 60.2 from 44.1 in February – in line with the seasonal pattern.

Sources: CFLP; Plexus Asset Management.

The rate of expansion in Russia’s services sector has steadied while the expansion in Brazil’s has accelerated.

Sources: Markit; CFLP; ISM; Plexus Asset Management.
*Japan is off the screen due to the disaster’s impact on the numbers.

Sources: *Markit; **CFLP, Li & Fung, Plexus; ***ISM, Plexus; ****Markit, Plexus Asset Management.

GDP-weighted/Composite PMIs

On a GDP-weighted/composite basis where the manufacturing and non-manufacturing/services are both taken into account, the growth in global economic activity decelerated sharply in March, taking the JPMorgan Global Composite PMI index from a robust 59.4 in February to 54.7. That compares to 58.3 in January and 57.1 in December last year.

Sources: *Markit; **CFLP, Li & Fung, Plexus; ***ISM, Plexus; ****Markit, Plexus Asset Management.

Sources: Markit; Li & Fung; ISM; Plexus Asset Management.
*Japan is off the screen due to the disaster’s impact on the numbers.

Summary

US economy: GDP-growth accelerating

My GDP-weighted ISM PMI for the US leads US real GDP growth by a quarter. At this stage it continues to indicate first-quarter GDP growth in excess of 3% on a year-ago basis and may even touch 3.5%. If the current robust manufacturing and non-manufacturing PMIs hold up through end June, the year-on-year GDP growth could reach 4% and beyond in the second quarter, barring any fallout from the Japanese disaster, that is.

Sources: ISM; FRED; Plexus Asset Management.

Eurozone: GDP growth to gain momentum in Q2

The PMIs during the fourth quarter of 2010 indicates that GDP growth in the first quarter is likely to come in at approximately 2.5% compared to a year ago and, barring any fallout from the Japanese disaster, to accelerate to 3% in the second quarter.

Sources: Markit (various internet sources); I-Net; Plexus Asset Management.

China: Still going strong!

As I expected, my calculated GDP-weighted PMI for China spiked in February, due to the reversal of the seasonal weakness induced by the Chinese Golden Week. The non-manufacturing PMI for March surprised me on the upside, though. Where I thought that the somewhat weaker trends in January and February were indications that the stricter monetary policies pursued over the past 12 months have started to bite, it seems to me that the PBoC needs to do more to slow the economy.

Sources: CFLP; Plexus Asset Management.

From a forecasting point of view the CFLP manufacturing PMI gives a better picture of underlying GDP growth due to lower seasonality. China’s year-on-year GDP growth of 9.8% in the last quarter of 2010 was in line with my estimate of 10% based on the manufacturing PMI’s trend in that quarter. It is evident to me that China’s year-on-year GDP growth in the first quarter is likely to come in at approximately 10%.

Sources: Dismal Scientist; Li & Fung; Plexus Asset Management.

Japanese economy: To get worse before recovering?

How the Japanese economy will perform over the next few quarters as a result of the disaster is virtually impossible to say. We will have to take our lead from the trend in the manufacturing and services PMIs. In the following graph I have assumed that the manufacturing PMIs for the next three months will come in as follows (March was 46.4): April 40; May 45; and June 50. In this scenario it seems to me that GDP growth in the first quarter will register approximately -1% on a quarter-on-quarter annualised basis. In the second quarter the GDP is likely to shrink by 2% to 3% on the same basis.

Sources: Dismal Scientist; Markit; Plexus Asset Management.

UK economy: Continuing to gain traction…

From my reading of the GDP-weighted PMI the UK grew by approximately 2.0% in the first quarter on a year-on-year basis compared to 1.6% in the fourth quarter of 2010. It is evident that growth in the second quarter will accelerate to approximately 2.5% to 3.0%, barring any fallout from the Japanese disaster.

Sources: Markit; Dismal Scientist; Plexus Asset Management.

Conclusion

While both global manufacturing and non-manufacturing/services PMI numbers continue to be relatively strong, the onset of a declining trend is something to watch closely. The population of black swans in the global pond has now been expanded by the terrible natural disaster in Japan. The geo-political situation in the Middle East and North Africa is not improving, lending support to higher oil prices and increasing price pressures in the global economy. The PBoC has again tightened its monetary policy. The potential contagion of the debt crisis in the Eurozone and the impact of austerity measures on the Eurozone economy are still major uncertainties. These black swans and how they will unfold are likely to influence and prescribe the policies of central bankers globally.

Tags: Asset Management, Brazil, China, Contraction, Emerging Economies, Eurozone, Global Growth, Gold, Hiccup, India, Ism, Kagiso, Mainland China, Management Sources, Manufacturing Sector, Manufacturing Sectors, Moderation, oil, Pmis, Rsa, Russia, Scorecard, Seasonal Factors, Second Consecutive Month, Tragic Events, Turnaround
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Robust Growth All Round! (Global non-manufacturing/services PMI Scorecard)

Monday, March 7th, 2011

The non-manufacturing/services PMIs released for February 2011 continued to build on the already robust levels and are reminiscent of the robust manufacturing PMIs. The JP Morgan Global Services PMI rose to 59.3 from 58.2 in January.

The non-manufacturing sector in the U.S. continues to forge ahead with the ISM non-manufacturing PMI coming in at a very robust 59.7 compared to 59.4 in January. In the Eurozone Germany’s robust services sector moderated somewhat but the services sector in France continues to accelerate rapidly, with the PMI jumping from 59.7 compared to 57.8 in January. Elsewhere in the Eurozone Italy and Ireland expanded rapidly, while in Spain the PMI improved to an expansionary 50.8 compared to a contraction in January. The robust expansion in France and the improved conditions elsewhere in the Eurozone took the PMI for the Eurozone to 56.8 in February from 55.9 in January despite the moderation in Germany.

The significant rebound in the U.K. services sector in January was unable to follow through in February as the PMI moderated to 52.6 from 54.5 in January. Similarly, Japan’s services sector could not hold onto the gains of the previous two months, dropping back to 49.8 from 50.4 in January. The contraction in Australia’s services sector PMI has moderated significantly to 48.7 in February after sagging to 45.5 in January.

In the emerging economies the robust expansion in India’s services sector continues to accelerate. China’s non-manufacturing PMI tumbled to 44.1 from 56.4 and although lower than I expected (47) it was in line with the seasonal pattern.

Sources: CFLP; Plexus Asset Management.

The rate of expansion in Russia continues to moderate but the expansion in Brazil’s services sector has steadied.

Sources: Markit; CFLP*; ISM; Plexus Asset Management.

GDP-weighted/Composite PMIs
On a GDP-weighted/composite basis where the manufacturing and non-manufacturing/services are both taken into account, the growth in global economic activity continued to accelerate in February, taking the JP Morgan Global Composite PMI Index to a robust 59.4 from 58.3 in January and 57.1 in December.

Sources: *Markit; **CFLP, Li & Fung, Plexus Asset Management; ***ISM, Plexus Asset Management; ****Markit, Plexus Asset Management.

Summary
U.S. economy: GDP growth accelerating
My GDP-weighted ISM PMI for the U.S. leads U.S. real GDP growth by a quarter. At this stage it indicates that the U.S. economy in the first quarter of this year is in excess of 3% on a year-ago basis and may even touch 3.5%. If the current robust manufacturing and non-manufacturing PMIs hold up through end June, the year-on-year GDP growth could reach 4% and beyond in the 2^nd quarter!

Sources: ISM; FRED; Plexus Asset Management.

Eurozone: GDP growth to gain momentum in Q2
Although the official year-on-year GDP growth number for the 4^th quarter came in at 2.0%, I am of the opinion the number will be revised upwards as my GDP-weighted PMI for the Eurozone indicates that the economy grew by approximately 2.5% on a year-ago basis. The PMIs during the fourth quarter of last year indicates that year-on-year growth in the GDP is likely to be maintained at 2.5% in the first quarter of this year but may accelerate to 3% in the second quarter.

Sources: Markit (various internet sources); I-Net; Plexus Asset Management.

China’s GDP-weighted PMI: tanked as expected in February but …
My calculated GDP-weighted PMI for China tanked in February as I expected based on the apparent seasonal trend influenced by the Chinese Golden Week that started on 2 February. A significant jump in both manufacturing and non-manufacturing PMIs is likely in March but the somewhat weaker trends compared to the past indicate that the stricter monetary policies pursued over the past 12 months have started to bite. I therefore doubt whether my GDP-weighted PMI will reach heights similar to those of 2008 and 2010.

Sources: CFLP; Plexus Asset Management.

From a forecasting point of view the CFLP manufacturing PMI gives a better picture of underlying GDP growth due to lower seasonality. China’s year-on-year GDP growth of 9.8% in the last quarter of last year was in line with my estimate of 10% based on the manufacturing PMI’s trend in the last quarter of last year. It is evident to me that China’s year-on-year GDP growth in the first quarter is likely to be slightly lower than the 4^th quarter’s 9.8%.

Sources: Dismal Scientist; Li & Fung; Plexus Asset Management.

Japan: edging ahead!
The uptick in the manufacturing PMI and the second consecutive month of expansion in the services PMI may indicate that the Japanese economy may stave off a double-dip recession in the short term.

Sources: Dismal Scientist; Markit; Plexus Asset Management.

UK economy: Continuing to gaining traction…!
From my reading of the GDP-weighted PMI the U.K. has grown by approximately 1.8% in the first quarter on a year-on-year basis compared to 1.6% in the fourth quarter of last year. It is evident that growth in the second quarter will accelerate to approximately 2%.

Sources: Markit; Dismal Scientist; Plexus Asset Management.

Conclusion
Both global manufacturing and non-manufacturing/services PMI numbers continue to surprise me on the upside. I am therefore of the opinion that as things stand, a sustained improvement in global manufacturing and non-manufacturing/services PMIs in the next few months will again see some hawks raising their heads in the FOMC, BoE and ECB as headline inflation is also turning for the worse. I would certainly start to bet on the Fed raising the Fed funds rate in the third quarter of this year.

That said, my expectation hinges on a neutral scenario – that is the absence of black swans or, put differently, no major global crisis. However, the global pond is becoming increasingly infested by black swans, i.e. the worsening geo-political situation in the Middle East and North Africa, the stricter monetary policies of the PBoC, and the potential contagion of the debt crisis in the Eurozone. Any severe crisis is likely to adversely affect consumer sentiment and consequently demand in developed economies, and may therefore delay monetary tightening actions by the respective central banks.

Tags: Asset Management, Brazil, China, Contraction, Emerging Economies, Eurozone, Global Services, Gold, India, Ism, Jp Morgan, Manufacturing Sector, Manufacturing Services, Moderation, Pac, Pattern Sources, Pmi, Rebound, Robust Expansion, Robust Growth, Robust Services, Russia, Scorecard, Seasonal Pattern
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Global PMI Scorecard: Robust Growth But …

Tuesday, January 11th, 2011

Non-manufacturing/services PMIs

The non-manufacturing/services PMIs released for December 2010 indicated that the global services or non-manufacturing sector reached robust growth levels with the JPMorgan Global Services PMI jumping to 57.3 from 54.6 in November. The Global Services PMI was strongly underscored by the US being particularly strong with an increase to 57.1 from 55.0 in November.

Despite continued robust expansion in Germany, and France to a lesser extent, the rate of expansion in the Eurozone softened to 54.2 from 55.4 in November as the cracks in the debt-ridden member countries are increasingly exposed. Growth in Italy’s services sector slumped dramatically to a barely growing 50.2 from 54.4, the contraction in Spain is deepening while the services sector in Ireland slumped. The U.K. followed Ireland’s example and slumped into contraction with 49.7 compared to 53.0 in November.

Japan’s services sector is at long last expanding again albeit only marginally as the services PMI improved to 50.2 from 49.5 in November. The services sector in Australia has again contracted in December but at a more moderate rate as the PMI improved to 46.4 from 46.2.

In the emerging economies the expansion in India’s services sector is still robust but moderated to 57.7 from 60.1. The expansion in China’s services sector quickened to 56.5 from 53.3 in November mainly due to seasonal factors. The rate of expansion in Russia accelerated to a robust pace while Brazil’s services sector continues to expand at a moderate pace.

GDP-weighted/composite PMIs

On a GDP-weighted/composite basis where the manufacturing and non-manufacturing/services are both taken into account, the growth in global economic activity accelerated at a substantially faster rate taking the JPMorgan Global Composite PMI index to 57.1 from 54.5 in November.

Conclusion

US economy: GDP growth accelerating

My GDP-weighted ISM PMI for the US leads US real GDP growth by a quarter. At this stage it indicates that the US economy in the fourth quarter grew by approximately 2.5% on a year-ago basis but that the growth in the first quarter of this year is likely to accelerate.

Sources: ISM; FRED; Plexus Asset Management.

Eurozone: GDP growth to moderate

The GDP-weighted PMI for the eurozone gives me insight to where the Eurozone economy is heading. In my opinion the economy grew by approximately 2.5% on a year-ago basis. The PMIs during the fourth quarter of last year indicate that year-on-year growth in GDP is likely to moderate somewhat in the first quarter of this year.

Sources: Markit (various internet sources); I-Net; Plexus Asset Management.

China’s GDP-weighted PMI: Rebounded as expected in December but …

My calculated GDP-weighted PMI for China for December was in line with my expectations based on the apparent seasonal trend. The outlook for January and February is very uncertain, though. The so-called Chinese Golden Week which consists of the Chinese New Year and other festivities lasting 15 days had a significant impact on the economy in the past. My analysis indicates that when the Golden Week fell in the second half of January, that month’s composite PMI was very weak. If it fell at the end of the month or the first week of February, both January and February were weak. The next Golden Week is scheduled to start at the end of the first week of February this year and I will therefore not be surprised if both the manufacturing and non-manufacturing PMIs for January and February surprise the market on the downside.

Sources: CFLP; Plexus Asset Management.

From a forecasting point of view the CFLP manufacturing PMI gives a better picture of underlying GDP growth due to lower seasonality. From the manufacturing PMI’s trend in the last quarter of 2010 it is evident that China’s year-on-year GDP growth accelerated in the fourth quarter to approximately 10%.

Sources: Dismal Scientist; Li & Fung; Plexus Asset Management.

Japan: Tough times ahead?

The significant diversion between Japan’s GDP growth and the manufacturing PMI continues. If the trend in the manufacturing PMI is likely to shape the future then I am afraid that Japan’s economy may soon find itself in a double-dip recession.

Sources: Dismal Scientist; Markit; Plexus Asset Management.

UK economy: Grave danger ahead

Just when it appeared that the UK economy had steadied and was heading higher my GDP-weighted PMI in December slumped precariously close to 50 where a level below that would indicate contraction in the economy. In fact, the services sector that accounts for more than 77% of the economy is already in contracting mode.

Sources: Markit; Plexus Asset Management.

The composite PMI currently indicates that growth in the fourth quarter has slowed to approximately 2% on a year-ago basis from the third quarter’s 2.8% but could slow to 1.5% in the first quarter of this year.

Sources: Dismal Scientist; Markit; Plexus Management.

I remain skeptical regarding the outlook for the global economy. There are just too many black swans out there! China’s Golden Week is around the corner. Will the quantitative easing in the US weather the housing storm? Significant cracks in the Eurozone’s debt-ridden member states have suddenly opened. What about the potential contagion of the debt crisis in the Eurozone?

Tags: Brazil, Contraction, Cracks, Emerging Economies, Eurozone, GDP, GDP Growth, Global Economic Activity, Global Services, Gold, India, Ism, Manufacturing Sector, Manufacturing Services, Member Countries, Moderate Pace, Moderate Rate, Pmis, Real Gdp, Robust Expansion, Robust Growth, Russia, Scorecard, Seasonal Factors
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