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The IHS Markit Global Sector PMI™ signalled sustained strong
recovery for the global economy, led by the consumer services
sector. Less congruent with financial markets had been the weakness
of basic materials output in July, with the wedge underpinned by
supply constraints.
Global Sector PMI™ indicates consumer services lead
sector growth again in July
Global Sector PMI™, compiled by IHS Markit, revealed that all 21
sectors and eight sector groups sustained in growth in the latest
July update. Tourism & Recreation was the fastest growing
sector, with Consumer Services the fastest growing among the
broader sector groups. This indicates a continuation of the global
economic recovery, led by strong services output, particularly
across the US and Europe.
That said, Tourism & Recreation, as with all bar the
Consumer Goods sector, experienced an easing of growth momentum
according to the July survey. While the
spread of the Delta variant across the Asia Pacific region had a
key part to play, moderation of the growth pace from
historically elevated rates during the second quarter, such as in
the US, also contributed to the slowdowns. The overall growth
speed, however, remained strong by historical standards, with
Consumer Services still the flag bearer in July.
Basic materials sector performance diverges with asset
prices
Assessing the sector group performance against the MSCI World
sector indices' performance in July, one finds the price action for
most sectors not deviating too far from actual output conditions.
This is with exception of the Basic Materials sector group.
Basic Materials sector output growth eased for a second straight
month to land in the last position of the eight sector groups we
track in the global sector survey. In contrast, the MSCI World
Materials Sector Price Index rose 3.0% in July, contributing to the
13% year-to-date (YTD) gains, and was amongst the top performers in
the month.
The divergence may be best explained by the supply constraints
surrounding the Basic Materials sector, allotting the companies
with considerable pricing power amid sustained global economic
recovery expectations. All of which had been well illuminated by
the various PMI sub-indices.
While the Basic Materials output growth momentum eased into
July, pricing power was sustained at elevated levels as shown by
the output price sub-index. This is as Basic Materials firms
experienced severe lengthening of input delivery delays, a global
phenomenon well captured by the
Suppliers' Delivery Times Index. Concurrently, optimism in the
Basic Materials sector remained strong as seen by the Future Output
Index reading that posted well above the survey average in July,
although nothing of the extent that Consumer Services appear to be
enjoying.
As shown in the
case studies for US, Japan and Europe, sector PMI data were
used to formulate active investment strategies, exhibiting their
ability to provide signals for investments into financial markets.
While we have yet to formalise the same for global sectors, it is
nevertheless worth considering the potential impact here for
materials sector asset pricing moving forward, particularly with
output growth slowing, the question lies with when will the other
shoe drop.
Asia Sector PMI™ tells a different story of consumer
services under pressure amid COVID-19 wave
Separately, prior to the release of the global sector data,
Asia Sector PMI™ had also continued to tell the story of the
Delta wave impact in July with the Consumer Services sector group
in contraction as opposed to the global trend.
The good news is that the contraction of sector output eased
from June, though it may be hard to call a turning point a trend
yet.
Once again, the issue of divergence boils down to vaccination
rates as displayed by the chart on manufacturing output and
vaccination rates, which clearly shows the positive corelation.
Many Asian economies continued to lag counterparts in Europe and
North America in July in terms of their vaccination rates, and one
can imagine this divergence in sector performance to likewise only
sustain if the gap is not narrowed.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
