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Economy in Brief

Global PMI's Forecasting Record Low in Manufacturing Production
by Louise Curley November 4. 2008

After two sharp declines in September and October the global PMI (Purchasing Managers Index) for manufacturing reached a record low of 40.98 (50+ = expansion)in October, as can be seen in the first chart.

The PMI is a good predictor of manufacturing production. As an example, the second chart shows the relationship between the PMI for the Euro Area and the year-over- year changes in its manufacturing production. The correlation, R, between the two series is .84, the R2 is .706 indicating that the PMI explains about 70% of the variation in manufacturing production.

The Global PMI is based on the responses of 26 countries that account for 83% of world manufacturing production. The latest figures suggest that no country appears to be immune to the global slowdown in manufacturing production. In the October data there is only one country still in the expansion phase, that is, India, with an index of 52.19. but it has been declining from a somewhat higher base than some of the other countries. The third chart compares India with three other emerging markets--China, Russia and Brazil.

The countries showing the lowest PMIs, and hence, the greatest contraction, are Ireland, 39.69, Italy, 39.67 and Spain, 34.60, These last are shown in the fourth chart.

PURCHASING MANAGERS' INDEXES  Brazil China India  Italy Ireland Spain Russia Singapore  Japan UK Euro Area
October 2008 45.68 45.23 52.19 39.67 39.69 34.60 46.45 45.80 42.22 41.49 41.10
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