UK, China manufacturing improves

China’s manufacturing expanded for the 4th consecutive month in June, with its Purchasing Managers’ Index rising to 53.2 from 53.1 in May.  Anything above 50 signals an expansion.  This may be in part due to the stimulus package that the government has unveiled, providing liquidity to the economy helping push consumer demand up.

This development is accompanied by another good news in the country’s stock market as the Shanghai Composite Index rose above 3,000 for the first time since the collapse of Lehman in September.  While this exhibits a positive for China, the opposite seems to be happening in Japan as the country continuously faces a slump in manufacturer confidence, rising less than what is expected by economists.

The report via Bloomberg HERE.

Another sign of improvement is seen in the UK as manufacturing declined less than what was seen last month.  This is the smallest contraction in a year.

A gauge based on a survey of factories climbed to 47, the highest since May 2008, from 45.4, the Chartered Institute of Purchasing and Supply and Markit Economics said today in London. Economists predicted 46.4, the median of 29 forecasts in a Bloomberg News survey shows. Readings below 50 show contraction.

This might indicate that the downturn in the UK economy has eased and the worst, behind them.

See the report through Bloomberg HERE.

Despite what seems to be good news from both countries, the Wall Street Journal points out that while there is an improvement in manufacturing, there might be devil in the detail.  Apart from looking at the manufacturing and new order numbers, we also need to look at how much of these are actually shipped.

Orders, of course, can be canceled, notes Deutsche Bank economist Carl Riccadonna. The real measure of production is how much stuff gets shipped out, and if you compare shipments to inventories, the picture isn’t so pretty. Inventories of durable goods in May rose to nearly 1.9 times the number of shipments of such goods — the highest so far in this recession.

This means that we would have to see this ratio go down first before we can breathe some sigh of relief.  Keeping a high ratio like this could only indicate high invetories but low shipping rate – one that contributes to overstocking and even declining prices.

Read about it HERE.

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