Countries with strong trade ties to China see an artificial boost in their February manufacturing PMI readings
- The Markit report on the Australian manufacturing PMI reading earlier
- Australia's second manufacturing PMI for February goes up!
- Japan - Manufacturing PMI (final) for February: 47.8 (prior 48.8)
- South Korea Feb new export orders contract at fastest pace in over 6 years
I pointed it out two Fridays ago with the German reading here and Australia's headline print today is but a fine example of a 'false positive' when it comes to the latest manufacturing PMI readings - for counties with strong trade ties to China that is.
Again, for some context, the headline PMI print is derived from five key sub-indices namely output, new orders, employment, input inventories and delivery times.
For example, in Australia's case, output, new orders and employment all continued to fall with some signs of further deterioration since January - yet the headline reading jumped up from 49.6 to 50.2. So, what gives?
At this stage in time, the headline reading is basically worthless. This is due to the fact that supplier delivery times are distorting the actual story in the report.
As China went into lockdown mode last month, it caused a massive disruption to the supply chain and weighed on supplier delivery times.
But this index is inverted when it comes to calculating the headline reading - giving a false impression that conditions are getting better. This is better explained here.
As such, take the headline readings with a pinch of salt as the world continues to be gripped by the impact of the coronavirus outbreak. There is more than meets the eye, as the devil is always in the details when it comes to economic releases.