The Direction Is (Globally) Clear

It is definitely one period that they got wrong. Still, IHS Markit’s Composite PMI for the US economy has been one of the better forward-looking indicators around. Tying to real GDP, this blend of manufacturing and services sentiment has predicted the general economic trend in the United States pretty closely. The latter half of 2015 was the big exception.

For November 2015, the composite index jumped to 56.1 from 55.0 in October. Coming as it did during those particular months of “global turmoil” and “manufacturing recession” this was taken as a sign the US really was the cleanest dirty shirt; at least in the services sector.

What Markit said at the time matched perfectly this general consensus:

The US economy is showing further robust economic growth in the fourth quarter, with the pace of expansion picking up in November.

The faster pace of growth and healthy hiring trend were accompanied by the sharpest rise in average selling prices seen for four months, providing a triple-boost to the chances of the Fed hiking interest rates at its next meeting.

The FOMC members would, in fact, vote for their first “rate hike” in nearly a decade the following month. Rather than kick off the long-awaited exit, however, it would be the only one for another year. Something went very wrong in between.

The PMI index around 56, according to Markit at the time, “brings the composite index up to a level indicative of 2.3% annualized GDP growth in November.” This “provid[ed] additional reassurance on the strength of the economy after yesterday’s upward GDP revision”.

GDP figures have been revised several times more over the years since, but they are largely in line today with how things actually went back then. There wasn’t any economic strength underlying anything anywhere, Markit’s composite PMI had been adrift in the clouds. Instead, real GDP is now thought to have been almost zero in Q4 2015, following in Q3 growth of less than 1%.


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