Buyers Back In Business

14th September 09 – Buyers back in business

There is a highly respected index that has pretty much universal recognition. It measures whether purchasing activity and therefore factory output is expanding or contracting. The break point being 50. In most countries it is known as the PMI (purchasing managers’ index) although in the US it is the index of factory output as issued by The Institute of Supply Management. For the UK, a combination of the PMI’s for different industrial sectors is regarded as a good indicator of GDP movement.

Just as the stock markets around the world appear to be saying that the worst of the credit crisis is over (see the diary entry dated 11th September), so PMI’s are singing the same tune. August 09 figures compared to July are reported as follows:-

• USA 52.9 (48.9)

• China 55.1 (52.8)

• Taiwan 55.0 (53.8)

• South Korea 53.6 (54.0)

• France 50.8 (48.1)

• Germany 49.2 (45.7)

There are countries that have not broken through the 50.0 barrier including the UK (49.7), Italy and Spain. In the UK, the index was dragged down by substantial job losses with the labour market contracting for the 17th month in a row.

Although the UK appears to be lagging behind the likes of the US and China, it is important to note that for the first time in living memory, the British saved more than they spent. In other words they preferred to pare down debt rather than spend in the shops. This in turn helps the lenders repair their balance sheets.

Who can remember Aesop’s fables? The tortoise won the race. Slowly get better. Go out and spend later.