A quick glance at the chart shows that PMI readings are coming in at the highest levels for several years, a move that started around November 2020. As such, it is exceedingly easy to take this data point and feed it into the broader “global recovery is booming” narrative. Which is, of course, what a lot of people have done.

However, a closer look reveals that the PMI readings have been pushed higher by an increase in supplier delivery times. In a more normal world, higher supplier delivery times are viewed positively because they tend to point toward suppliers struggling to keep up with strong demand. The danger comes when transposing this line of thinking to a world which is far from normal because of Covid, which has severely disrupted global supply chains.

A good example of this is skyrocketing shipping costs, which have already been established as more of a supply disruption than a consequence of massive demand growth (this is not to say that demand is at low levels, because it isn’t). Shortages in other key components of production, like semiconductors, have also contributed to delays in supplier deliveries. Higher PMIs in 4Q2020 and 1Q2021 are therefore not fully indicative of “boom times”, and people who only fixate on headline numbers are not seeing the full picture when constructing their hyper bullish narratives. 

On the flip side, there are market participants/commentators who will construct bearish narratives by fixating on the effect of supply disruptions on the headline number. However, in doing so they will be falling into the same trap as their bullish brethren – ignoring the details.

As Markit reports, growth in new orders and growth in production remain high, and at some of the fastest rates over the past few years. There is, and has been, a recovery in demand, maybe not as strong as the headline number would suggest, but certainly not weak either. Remember, the devil is in the details!