Two of the three PMI's have been released to show manufacturing and services contract for a second consecutive month. The manufacturing print of 53.4 was not up to the glorous speed of the 14-year high seen in March but respectable none the lesss.
I would usually expect to see the manufacturing or services PMI to lead GDP by 6-12 months, however I did not feel the need to lag the data as the correlation is pretty good on similar timeframes. There are occasions where PMI will lead by a quarter but it wasn't frequent enough for me to change the timeframes as the general correlation can be seen clearly enough.
Here I overlay GDP change and Services PMI and have to concede the correlation at times does not seem as strong. In early 2003 and 2004, for example the Services PMI was positive whilst GDP posted 3 negative exchanges (not contractions, but down from the prior read. However, it can be argued that Services pays a more important role in the GDP read than previous and if this is indeed the case, we should take notice of the fast it has contracted six times out of seven and the only positive read was in Feb before rolling over again. GDP change has tracked this, which suggests growth is likely to feel heavy despite the recent gains seen on the manufacturing PMI.
Construction has been shifted 4 months as I feel it does behave more like a leading indicator (as the PMI's are designed to). This would make sense because construction would be earlier on in the value chain compared with services. Manufacturing would be expected to be a better lead but as mentioned before this is perhaps down to its smaller participation towards GDP.
Australian PMI's remain below par
Following yesterday's rate cut by RBA analysts will be keeping a closer eye on leading indicators to assess the probability of further easing. With two of the three PMI's under water this sends further signals of a weaker economy ahead unless 1.75% can instil more confidence.