Week 22, 2011: Manufacturing

Summary: Manufacturing growth, while still positive, has slowed down considerably across most major economies, with the exception of Japan which is recovering from 2 months of contraction in the sector.

What does the chart show? For the UK, Germany, France and Japan, the lines represent the Manufacturing PMI (Purchasing Manager's Index), which measures the growth of activity of purchasing managers in the manufacturing sector - generally considered one of the best measures of the health of manufacturing. For the US, the line is the ISM Manufacturing Index, a direct survey of over 400 companies within the manufacturing sector. In both measures, a number over 50 represents growth in the sector, and a number under 50 represents contraction.

Why is the chart interesting? Data released this week shows that for most major economies, with the exception of Japan which decoupled from the others in the summer of 2010, growth in the manufacturing sector fell sharply in May. This is most pronounced for the UK, which had the highest sector growth at the beginning of the year (for the first time since July 2009) but which has now dropped to fourth place out of the five included in the chart above.

Manufacturing is of crucial importance to all economies, but especially the US and Japan. The growth of the sector tends to pre-empt GDP growth, and so everyone will be hoping the manufacturing sector picks up over the summer.