Purchasing managers index is in my view a good forward looking indicator as it effectively measures the view that the workers on the ground have. If those in charge of purchasing raw materials etc for goods to be sold are not active well then that’s a better indication of what they are currently seeing and how they project there business to fare out over the coming months.
50 is usually the magic number with this data point i.e historically a number sub 50 indicates contraction and above 50 indicates growth. The UK pmi just came in at 47.5 which is not only lower than expected but also obviously below that magic 50 level.
This flies in the face of the GDP print last week of better than expected 1% and if you remember I mentioned that you would have plenty of govt. officials claiming it was not a one off owing to Olympic activity and a busy summer. Well not for the first time the government spin turns out to be incorrect, however this wont make the headlines in the newspaper whereas the GDP print does.
How the market reacts to this data? Well you should see some weakness in GBP across the board, especially as some were puffed into believing there should be some upside coming.
Keep calm and carry on will be the message from the powers that be if they even make reference to it but it highlights that UK manufacturing was and is struggling while everyone was drinking pimms and toasting the jubilee and olympic celebrations.