What's going on?
In a song of fire and ice (#GOT), manufacturing activity across Europe has taken a breather from the heady heights of late 2017 – settling at lower levels (but investors aren’t panicking yet). On the other hand, US manufacturing activity is rocking on!
What does this mean?
The Purchasing Managers’ Index (PMI) — which surveys manufacturing professionals for an indication of business activity — showed that manufacturing activity remained at solid levels in the UK. And Europe performed even better.
Still, both the UK and Europe had less manufacturing activity than in recent months. Investors weren’t worried, however, as this was largely expected. Some investors believe activity could have been even higher but for disruption from severely cold weather and snow.
Meanwhile in the US, despite the Nor’easter snowstorms battering the East Coast, manufacturing activity remained strong. Activity fell slightly in March compared to the month before, but February was the strongest month on record in 14 years — investors forgave the US for not besting that!
Why should I care?
For markets: PMI surveys are important data points because they play into whether interest rates will rise.
Economic growth doesn’t move in lock-step with manufacturing activity, but it’s generally a good indicator. Moreover, central banks look at this data as they consider increasing interest rates – the European Central Bank is eyeing next year and the Fed expects to raise rates 3 times this year.
The bigger picture: Getting data from the ground can help cut through the media noise.
Given trade concerns are dominating the market, survey data from boots on the ground are a helpful reminder that businesses are motoring on, driving economic growth. So what? It’s worth remembering that most of these businesses are local companies: in the UK, 60% of jobs in the private sector are with small- and medium-sized businesses as opposed to the multinational giants that dominate the news. In Europe, it’s just under 70% and it’s about half of all American workers.