The PMI gauges orders, stock, employment and output levels in factories. In other words, it tells you how things are going in industry.
PMI values above 50 indicate an expected increase of business conditions. Anything below the 50 mark means a deterioration. So 50 is the "dividing line" between growth and contraction.
The chart below shows Eurozone PMI figures for March this year. Despite a recent upturn, you can see that the manufacturing PMI (black line) remains below 35, meaning manufacturing activity is still contracting sharply.
The "dividing line" that separates growth and contraction...
Now, if manufacturing PMI starts consistently climbing higher over the next couple of months, that’s clearly a bullish signal for the markets. But if it remains unchanged at a lower level, we can be sure the recession hasn’t released its hold.
But, don't wait for the PMI to reach the "dividing line", because by that time, the stock markets will have already recovered! Remember, stock markets typically start to recover six to nine months before economies rebound. We’ll revisit this chart when we see some significant movement ...
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