Explaining why PMI data sometimes diverge from official statistics
Eurozone PMI survey data diverged from official gross domestic product (GDP) in the second quarter of 2014. This paper explores whether this represents a failure of the PMI to forewarn of a weakening of the region's economy, and possibly the start of a new recession, or whether the official data are understating underlying economic health.
The evidence we have found so far points to the latter, meaning we anticipate a rebound in third quarter GDP to confirm the PMI survey's more upbeat signal. But any upturn in GDP should be treated with caution.
We conclude that GDP and the PMI only tend to diverge to an extent similar to that seen in the second quarter of 2014 due to special factors which affect GDP. We note that two major factors, unusual weather and changes in the number of working days, in particular are likely to have affected the GDP numbers in the three months to June. Bearing in mind the historical accuracy of the PMI in anticipating GDP, and the survey's low noise-to-signal property, it is reasonable to assume that the GDP temporarily understated economic growth in the second quarter and that a recovery will be seen in the third quarter, given recent PMI values.
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