How Has the Manufacturing Sector Held Up?
Economic activity is often measured by the forward-looking survey called the Purchasing Managers’ Index. The way in which the index is constructed suggests that a reading above 50 is indicative of expansionary activity, and a reading below 50 is contractionary.
The final euro area composite PMI for July came in at 50.5, which was a robust 1.8 pt. increase from June’s final reading, having built on consecutive increases in the past three months. The July euro area PMI stands 4.0 pts. above the March print. Solid increases were observed across all of the EMU4 in July, most notably Italy. The July reading is the highest euro area PMI level observed since July 2011.
The trends in country manufacturing PMIs also show positive trends, with Germany, France and Italy showing good readings. Italy’s manufacturing PMI has risen 6 points since March. These numbers confirm some of the positive news we are seeing in the latest GDP reading.
Conclusion
Europe has been one of the primary risks for the global economy—with sluggish growth and over-leveraged countries and banks being a prime concern for many investors. If Europe’s economy can expand upon its recent growth and exit from recession, this could be very supportive for equity markets. We are starting to see more investment in European equities, and we’d encourage a look at small-cap companies, which are more sensitive to local conditions in Europe, as we have written before.
Jeremy Schwartz is director of research at WisdomTree Investments (NasdaqGM: WETF). This post was republished with permission from the WisdomTree blog.
1Source: Bloomberg, WisdomTree
2Source: Eurostat, Q1 2013.
3Source- JP Morgan Research, Euro Area Consumers- Signs of Stabilization, August 2013