PMIs confirm global stabilisation
Simon Ward
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The G7 PMI manufacturing new orders index (i.e. a weighted average of country indices) rose for a second month in November, regaining the break-even 50 level, as suggested by a recovery in the world earnings revisions ratio discussed in a post last week. 
The revival confirms the forecast here that global economic weakness would abate in late 2011 in lagged response to faster real narrow money supply expansion. This forecast received earlier backing from less negative OECD leading indicator results – see here.
Better G7 new orders were driven by a large US increase and much smaller UK gain that offset further weakness in the Eurozone and a setback in Japan, the latter partly reflecting supply chain disruption caused by the Thai floods. (Thai manufacturing output plunged 35% between September and October.)
US economic outperformance is consistent with much stronger real money expansion in the US than elsewhere since the spring. Eurozone orders, however, typically follow those in the US so may have bottomed last month.
The pick-up in US orders accords with the historical pattern though has occurred slightly later than expected. This pattern suggests that the revival in momentum will be sustained in early 2012 – barring a negative shock from the Eurozone crisis or domestic policy errors (potentially including premature fiscal tightening).
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