Some of you may have seen a recent survey regarding Global Manufacturing presented by JPMorgan and Markit.  For those not familiar with PMI, it is an analytic that is populated by a subjective survey.  This is similar to the old Management Consulting rule of thumb:  the truth of anything is likely with the 92 people out of 100 that independently tell you the same story.

For the more analytically inclined, the PMI is represented mathematically as a “dynamic factor” or “diffusion index” defined as a “series which measures the co-movement of many time series”.  Anyone that wants to get a bit more into the weeds, should take a look at the “Purchasing Managers Index” page in Wikipedia.

PMI source data is collected through surveys.  Data included is new orders, output, employment, supplier lead times, and stock on hand of purchased materials.  Of the five categories, new orders is the most heavily weighted.  The Markit version of PMI ranges numerically from 0 to 100.  If 100 percent of respondents reported deterioration then the PMI would be “0”, likewise if 100 percent of respondents reported improvement the PMI would be 100.  In the aggregation of PMI data worldwide, the United States data represents 25% by weight.

Global manufacturing is in stagnation. (Image: JPMorgan, Markit)

Sam Ro, Managing Editor of Yahoo Finance had the following comments on the PMI:

The US manufacturing PMI fell to 50.7 in May from 50.8 in April. Unfortunately, the underlying details of the report were even less encouraging.

"The survey data indicate that factory output fell in May at its fastest rate since 2009, suggesting that manufacturing is acting as a severe drag on the economy in the second quarter," Markit's Chris Williamson said of the US report. "For those looking for a rebound in the economy after the lackluster start to the year, the deteriorating trend in manufacturing is not going to provide any comfort."

China, the world's second largest economy, also didn't have much good news to offer. The Caixin China manufacturing PMI fell to 49.2 in May from 49.4 in April. This signals contraction. The Chinese's government's official manufacturing PMI, which skews toward larger companies and state-owned enterprises, was unchanged at 50.1.  “We think the details in the survey are worse than what the headline numbers suggest, especially in new orders, export new orders, and inventories,” Credit Suisse’s Dong Tao said of the Chinese reports. “Looking forward, we expect the economy to hold up in the coming months with the lending in 1Q creating some investment activities, but without much further upward momentum. We think the economy will likely muddle through over the next 18 months.”

And then there's Europe.  "The euro area PMI slid to a three-month low in May, but nonetheless remained above the global average for the fifteenth month running," Markit said in its report. "Almost all of the eurozone nations for which data are collected registered expansions, the exceptions being France and Greece. Elsewhere in Europe, UK manufacturing stagnated, whereas growth remained solid in Poland and the Czech Republic."

"The whole world is effectively stalled because global demand growth is weak," IHS US economist Michael Montgomery said. At the center is the world's largest economy: the US.  "The US suffers at a short-term disadvantage because of the legacy of a strong dollar up until just a few months ago, and will continue to face dollar-drag for the rest of 2016," Montgomery continued. "With no engine of growth in world demand, losing exports to foreign competitors, and losing domestic market share to overseas suppliers, the moderate goods demand growth in the US is eaten away by drag. The manufacturing malaise continues with nothing but periodic spikes in one reading or another to disturb its torpor."

As for Certitude Group, our takeaway from the data is pretty much what we see in our clients and prospects:

  • Other than the odd tid-bit of good or bad news nothing much has happened in the past 5 years to indicate business growth

  • Over the past 7 years the PMI has been sliding steadily toward 50.00, in other words, not much is changing except sentiment is coalescing around “no change”

  • Just our opinion, but the lack of organic growth in demand for goods is a significant driver in a fair amount of the current M&A activity as Boards and Execs are leaving no stones unturned in search of corporate growth.  That said, some of the deals being announced lately seem like a bit of a stretch in terms of creating value…

  • Until economic conditions improve, performance improvement is one the few levers available to CEO’s for value creation and certainly lower risk than M&A

Today, a number of our clients are expressing interest in taking a look at business performance to ensure that their operations are positioned to deliver optimal value in this time of low enthusiasm and “low/no-growth”.  Please contact us if you believe that your business needs an objective review of performance opportunities.  It only takes a few weeks and it’s not expensive. 

Just drop a note to and we will call to set up a time to discuss the particulars.

Best regards to all…


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