February PMI reading back above neutral to 50.6

The latest FBN Quest manufacturing Purchasing Managers’ Index (PMI), report shows a recovery to 50.6 in February from 44.6.

The index is a familiar data release at the start of the calendar month in developed markets (such as the ISM in the US), the larger emerging markets such as China, and a few other frontiers.

It is based upon the responses of manufacturers to set questions on core variables in their businesses.

The index should be viewed as a forward-looking sentiment indicator, with the proven ability to move markets.

In the model FBN Quest have chosen (the ISM’s), respondents are asked whether output, employment, new orders, suppliers’ delivery times and stocks of purchases have improved on the previous month, are unchanged or have declined.

They are asked to make allowances for seasonal factors. A reading of 50 is neutral.

The index has posted just three negative readings since its launch in April 2013 (July 2013, May 2015 and January 2016).

Two of the five sub-indices were negative in February.

The strongest reading was 56 for delivery times.

“We link the marked recovery in the output sub-index from 38 in January to 53 to the simultaneous improvement for stocks of purchases from 43 to 52. Access to FX did not improve in the month under survey: far from it. It happened that companies of all sizes had been able to rebuild their inventories, which had been run down at the end of the holiday season. In these circumstances, we would expect companies to turn to local inputs, where available. Small firms would normally take the lead in this process, given their greater flexibility in production and their greater challenge in accessing FX,” FBN Quest analysts led by Gregory Kronsten said.

“The fact that the employment sub-index was below water for the third successive month tells us that companies do not see a bright future near term,” Kronsten said.