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Current Views

September 10, 2013: PMI’s Picking Up

Thoughts from our Domestic Equity Team

The release of the August non-manufacturing PMI (Purchasing Managers Index) was in Wall Street parlance a huge upside surprise. It came in at 58.6, well above expectations of 55 and marked the highest level in nearly 8 years. The chart below depicts the last 3 years of this data set, and one can clearly see the sharp increase that has occurred in recent months. While this is just one of a litany of data points measuring the strength of the economy, it is generally considered to be one of the more closely watched monthly releases. The index is designed to gauge business conditions in the service sectors of the US economy, and its construction delineates a value of 50 as the border between expansion and contraction. Therefore the August release is suggestive of accelerating growth in the service sector.

The manufacturing PMI also exhibited strength in August, if not quite to the same magnitude.  Its reading of 55.7 was the best showing since June of 2011 and was modestly ahead of consensus expectations.  Most importantly, its new orders component strengthened considerably, rising nearly 5 points and also reaching its highest level in over two years.

Certainly, overall conditions remain mixed in the US.  One need look no further than the disappointing August jobs report to see that challenges persist.  Nevertheless, the fact that both the manufacturing and non-manufacturing PMIs are simultaneously reaching multi-year highs is encouraging.  Perhaps more importantly, the forward looking components of these indices are also quite robust and could be a sign of better conditions ahead for the US economy.

Submitted by: Jason Sheer, CFA

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