Of the 21 nations covered by PMI "soft data" surveys, only 4 have sub-50 (deceleration) prints – Russia remains at multi-year lows along with France (core Europe?), Australia (but but China?), and Greece. Of course, as Goldman (some of the optimism on the basis of recent manufacturing PMIs… may not square with evidence of a structural break in the link between the PMIs and growth) and BofAML (it's important to understand how crude these surveys are) note, faith in these 'surveys' is often misplaced (and current levels suggest the rolling over is coming soon).
Bear in mind, Goldman's own work on "soft data" surveys like PMI in Europe – We conclude that some of the optimism on the basis of recent manufacturing PMIs… may not square with evidence of a structural break in the link between the PMIs and growth. While a reading of 50 may in pre-crisis days have indicated positive growth… it today may only indicate flat growth, as the external financing constraint prevents better sentiment from translating into activity.
It is important to understand how crude these surveys are. Each month, a few hundred purchasing managers are asked if a variety of activity variables are up, down, or the same relative to the prior month. Their responses are then converted into diffusion indexes: the sum of the number managers reporting activity is “increasing” and half of those reporting “the same.” Note that there is some guesswork involved: the survey is taken before the month is over and some of the questions cover areas of the firm that are difficult for a purchasing manager to get a timely read on.
Fans of the two indexes point out that they are relatively stable, easy to interpret and never revised. However, in our view, the simplicity of the data is a drawback, not an advantage. It means no attempt is made to correct misreporting or to include late respondents. Moreover, the sample they use is not representative of the overall economy. They represent a broad cross-section of industries, but they oversample big firms and they make no attempt to adjust for the birth and death of firms.
via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/zVEOFpsnDvE/story01.htm Tyler Durden