Uncertainty is the hallmark of all crises (see The new global cooling, published
6 September 2011). This period is no different. After bouncing back in October,
manufacturing PMIs for most emerging markets fell back into contraction territory in
November, undermining our hopes that the emerging markets were starting to stabilise on
the manufacturing side. Manufacturing production now seems to be clearly set for
contraction in Q4 on a global basis, but the services sector has managed to stay afloat so
far. But even that good news is not without its share of concerns as services sector
employment fell in November.  
US ISM data, however, have been a welcome surprise on both the manufacturing and
services fronts, with not only output but also new orders/business expectations picking up
for the world’s largest economy. What is propping up US growth and could this help to
pull up growth in some of the other regions as well? We believe that part of the resilience
in US growth can be explained by the fall in oil prices (WTI) that has helped to boost real
incomes and supports this stabilisation in consumer and business expectations.
On page 2, we look at charts of previous periods where the direction of moves on the US
and global PMIs has diverged, concentrating on periods when the US PMI is recovering
back to levels above 50. On the manufacturing side, a recovery in the US ISM has usually
preceded that on a global basis. The lead time, however, has been quite short, so if this
recovery in the US is genuine, we should see manufacturing PMIs recover over the next
couple of months globally as well, especially for the smaller emerging market economies
that are tightly linked to the global trade cycle.   
Our concern, however, is that this might not be the case. The US for once is not at the centre
of the crisis that is sapping confidence across the world, amplified by financial linkages.
And the PMI data for the Eurozone are anything but encouraging. The speed with which EM
central banks have shifted from monetary tightening to monetary easing policies is not so
surprising, therefore, despite the stronger-than-expected US economic data recently.
On the services side, there does not seem to be much of a lead in terms of US recoveries
and those in the rest of the world, but we would expect this to some extent given that
services tend to be more domestically driven.  
5 December 2011