Global PMIs

Although we are still waiting for the services PMIs from Europe and the US, it seems likely that the global PMI for October will be higher than that for September. Certainly, the manufacturing PMI rose from 52.5 to 53.7 with an encouraging rise in the new orders sub-index from 51.4 to 53.7.

Much has been made of the rise in US inventories over the last two or three months, with the argument being that once this had been stripped out of the GDP figures, final demand remained weak. This argument never really made once sense. Why would companies want to increase inventories if they knew demand was weak? And surely they knew enough about the state of final demand not to allow an involuntary build-up in inventories.

That said, the strong build-up in inventories over the last six months remains something of a puzzle. It has corresponded with a deterioration in the US (and UK) trade deficits. Logic dictates that if final demand in the US is weak, then the trade deficit should be improving as US companies seek new markets overseas to compensate for domestic weakness. Hopefully, the answer to this conundrum will become clear over the next few weeks.