Upside surprise in May global manufacturing sentiment

After gradually losing steam for nearly a year, global manufacturing sentiment may be cautiously on the verge of a trend shift, according to the final May reading.  Global manufacturing confidence index composed by Barclays surprised on the upside and showed a wide-ranged improvement in May, to -0.43 from -0.57, largely due to stronger manufacturing expansion in the US than has been predicted. 


"New orders improved more than initially estimated, mainly in the US, but also in China and the euro area, and inventories actually edged down due to continued destocking in China and Japan. As a result, our normalized index of global new orders less inventories now indicates an improvement to -0.48 (from -0.70 in April), which bodes well for a pickup in manufacturing output in upcoming months", according to Barclays.


Out of 21 countries included in our global index* 15 reported an improvement in headline manufacturing confidence in May (the other six were EM, except for Germany), a result that was last surpassed in October 2013 (when 16 countries reported it). This tentatively indicates a broad-based improvement in manufacturing is underway, as could also be interpreted from the strong services momentum; analysts argue that the decoupling of developed market service sector sentiment from the weakness in manufacturing was possibly associated with services taking a lead in the current growth cycle. 


This month Barclays introduces a new version of the global manufacturing confidence index (and the components series). The new index includes a different input series for the US manufacturing confidence; now only the ISM manufacturing (a combination of the new orders and production components), versus previously using a combination of these components of both the ISM and the Markit PMI are used. The analysts will respectively introduce a change in the global 'flash' series when it is published next month. The change is the result of a periodic validation that is performed on the global confidence model using various statistical tests, in order to ensure that the best signal for global production activity is captured.