Ed Peters
November 10, 2021

Purchasing Managers Indices (PMIs) continue to signal that global manufacturing remains in growth mode. But there are some notable issues.

The good news is that the Asian economies, which had fallen into negative growth mode due to outbreaks of the Delta variant of COVID-19, have rebounded as infections have fallen. China is also improving, though at a slower pace than smaller Asian markets like Vietnam and Thailand. In western economies like the US and Eurozone, growth is starting to slow, but remains at very robust levels for now.

There are some warning signs, however. Not surprisingly, bottlenecks in the global supply chain remain a drag on growth. Input prices continue to rise, and now output prices are also rising, supporting the notion of persistent inflation. Lead times for materials also continue to lengthen. These constraints mean that the PMIs will likely fall in the coming months, even if manufacturing activity continues at the current pace.

Why is this? The PMI is a survey that asks whether current conditions are (1) better than last month, (2) the same as last month, or (3) worse than last month. This month’s Global PMI read 54.3, which means that 54.3% of the participants answered (1). But if the environment goes to status quo, the answer will be (2) and the PMI will read 50. 50 signals stagnation, or half-steam ahead. This scenario is still better than a below-50 reading, which would mean deceleration, but not encouraging for capital markets, which depend upon economic acceleration. So if we go to a level of status quo, we could see a drop in the growth-oriented stock market. It’s too soon to tell whether this will happen, but it is definitely a possibility.

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