Behind the Numbers: US Economic Activity & German PMI
BlackRock iShares Blog
By Russ Koesterich
June 23, 2011
While many market watchers on Thursday focused on the higher-than-expected latest weekly domestic initial jobless claim data, we believe the key figures released Thursday were the Chicago Fed National Activity Index and Purchasing Managers Index (PMI) figures for Germany.
To be sure, that US initial jobless claim applications in the week ended June 18 increased 9,000, higher than the 5,000 decrease expected by economists, is clearly another sign of the decelerating recovery.
Still, that the May Chicago Fed National Activity Index came in at -0.37, well below expectations of -0.05 but above April’s -0.56 reading, is especially important. Why? This index, which measures U.S. economic activity based on 85 monthly economic indicators, has a good record of forecasting near-term US GDP. The latest figure tells us that in May, the economy was still growing at around the 2% pace we saw in the first quarter, confirming our expectations.
Similarly, new PMI figures confirmed that Europe is still expanding, but also at a slower pace than previously. Services and manufacturing growth in Europe generally slowed in June more than economists’ expected.
In contrast, however, German-specific figures implied that Germany is growing faster than the US and is still driving European growth. Specifically, while German PMI manufacturing came in lower-than-expected last month, the June PMI for services in Germany came in at a higher-than-expected 58.3, meaning German services grew last month more than economists’ forecast.
What are the implications of the new figures for investors? In light of continued confirmation of a slowing global economy, we continue to advocate a more defensive tilt, whether through defensive sectors such as healthcare and global telecommunications or through developed-market mega caps. In addition, we continue to hold an overweight view of Germany, which we believe is a pocket-of-strength within Europe, as we recently highlighted in our new Investment Directions monthly market outlook.
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