March 9, 2012

The Great PMI Matrix: Where to Find Economies That Are Expanding AND Improving

by Alpha Now Research Team

Perfection is pretty hard to find among national economies worldwide these days. Greece has been teetering on the verge of a particularly ugly economic disaster for years now, and while it hasn’t fallen over, the news is still dire, as the economy shrinks, unemployment soars along with civic unrest. The woes of nations on the periphery of the European Union are taking a toll on nations like Germany and France. Even in the United States — where the release of unemployment data for February showed that the jobless rate has remained steady while new job creation that month was actually better than expected – is on a bumpy road to economic recovery, as the Institute for Supply Management reported early this month that its reading of manufacturing activity dropped to 52.4, signaling that the rate of expansion is slowing.

To put that figure in context, and to look for countries where this measure of economic activity – the manufacturing purchasing managers index – is showing not only an expansion in the economy but also month-over-month gains, we drew on Datastream’s expertise to come up with the matrix below.

It’s disappointing, if not surprising, that the top right-hand corner – dedicated to those countries that show an improving reading in their economic activity, as measured by purchasing managers – is the smallest of the four and contains only two major industrialized nations, Canada and South Korea. Even when those economies are growing, as measured by the horizontal access, they are not doing so as rapidly as some other countries are declining. Nor does the rate of positive change as impressive as the rate of negative change on the part of some other nations, notably Greece.

The United States falls into another, larger category of countries: those whose economies appear to be still growing, but not as rapidly. India, for instance, may still be posting rapid growth, but the rate of growth has also slowed notably.

Particularly interesting are those nations whose economies are straddling one of the dividing lines of this matrix. Germany, for instance, is teetering on the brink between expanding and contracting, as is France: in the former, the rate of growth has been slowing, while in France it has been expanding, however. While Germany may be far and away the largest of the EU economies, perhaps it’s time to take a closer look at France, the national economy that is closest to achieving the ideal of an expanding and improving pace of economic activity, as measured by this purchasing managers’ survey?
Meanwhile, three of the four critical “BRIC” emerging markets countries are clustered around the centerpoint of the matrix. The direction in which they move going forward is likely to be vital for the global economy, given the high rates of GDP growth over recent years; economists believe strong growth in these large emerging markets can play an essential role in helping to revive growth in the more sluggish developed economies.

The overall message from the matrix? Gauging the future trajectory of global economic growth – even when you’re confining your scrutiny to a single data set – is a complex business, and the kinds of interrelationships between economies, such as within the eurozone and between the developed markets and the BRIC nations, that can’t be represented graphically makes this more complicated still.

Learn more about how Datastream can help you better analyze macro data and quickly identify data trends and relationships. Request a free trial today.

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