PMI Points to Improvement

01.28.2010 // Posted by: Michael Schwert // Posted in: Articles, Switches & Relays

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The manufacturing PMI prepared by the Institute for Supply Management in North America and Markit in Europe is a measure of the vigor of the manufacturing industry. A PMI above 50 indicates the manufacturing sector of the economy is growing It also correlates well with the performance of the switch market. The following shows why the PMI indicates continued improvement for the switch market in North America and Europe.

North American Switch Market Versus PMI

Let's look at the North American data. With six years of data the relationship between PMI and switch sales can be seen. The graph below shows quarterly indexed (Q1 2003 = 100) switch sales and bookings and Institute of Supply Management's North American PMI. The correlation between the two is reasonably good. In the third quarter of last year the average PMI was 51.5 a 21% increase from the 42.6 in second quarter. During the same time, the switch market fell few percent. In the fourth quarter the PMI improved 7% to 55.1 and hopefully incoming switch market data will show improvement.

Switch Market Sentiment

Each month Cumulus surveys sales and marketing people in the North American switch industry. One of the questions asked is will conditions in the switch market be better or worse in six months. The graph below shows the results for the last two years. Sentiment returned to positive territory in February of this year and latest reading is highest mark November of 2006.

European Switch Market Versus PMI

The graph below shows quarterly indexed switch sales and bookings and Markit’s Eurozone manufacturing PMI. Here Cumulus only has two years of sales data to work with. As with North America, the Eurozone PMI also correlates well with the ups and downs of the switch market. The Eurozone PMI made a strong improvements in the second, up 18%, and third, up 20%, quarters of last year. The fourth quarter saw a 7% improvement to 51.2, the first reading above 50 since Q2 of 2008. Reported European switch sales and bookings ended there decline in Q2 and showed some improvement in Q3.

Better Times Ahead

With the PMI firmly above 50 in North America and finally clearing that mark in Europe history shows that the switch will improve.

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