Following the collapse in industrial production, it is no surprise that Markit’s Manufacturing PMI has plunged to 51.3, its lowest since October 2012. Under the surface it is a disaster with production volume growth the softest since October 2013, and new orders crashed to worst since September 2009.
But do not ignore manufacturing because, as Markit notes,
“Although manufacturing only accounts for around one-tenth of the economy, the Manufacturing PMI exhibits a high correlation of 77% with GDP as industrial activity has an important cyclical impact on other parts of the economy.
With many sectors such as transport and business services dependent upon the manufacturing economy’s health, the downturn in the survey data sends a warning signal that the US upturn appears to be rapidly losing momentum as we move into 2016. However, the picture will become clearer with the publication of services PMI numbers on Friday.”
Seems like the perfect time to raise rates.