Tuesday, December 04, 2012

Manufacturing: ISM PMI vs. Markit

by Bill McBride on 12/04/2012 05:55:00 PM

The ISM manufacturing index indicated contraction in November, with the PMI declining to 49.5% (below 50 is contraction). A couple of weeks ago, the Markit PMI increased to 52.4 from 51.0 in October - a five month high - suggesting "moderate" expansion.

Which was it? Contraction or expansion?

Chris Williamson, Markit chief economist wrote today (ht NW): Divergence in ISM and Markit survey headline indicators masks consistent picture of sluggish expansion in fourth quarter

Two barometers of US manufacturing business conditions moved in different directions in November, but if examined in more detail both tell a similar story of modest expansion of manufacturing output so far in the fourth quarter.
the PMIs are composite indicators derived from various survey questions, and although using the same indexes, the two surveys have different weights for each component. While the headline composite indexes from the two surveys did diverge, the discrepancies are smaller when you look at the subindices.
When the Output Indexes from the two surveys are compared against the three-month change in official production data (a widely used comparison for survey and official data), the Markit index has a correlation of 94% compared with 87% for the ISM data (this is based in both cases on the data from mid-2007 onwards, when Markit data were first available).
Of course this commentary was from Markit (the ISM index has a much longer history).  And, however we look at the data, manufacturing is clearly weak.

Tim Duy at EconomistsView has more: Apples and Oranges in the Manufacturing Data?