Though the manufacturing PMI is a good indicator for assessing the dynamics of industrial production over a long period, recent constraints on supply have again highlighted a methodological problem in the index linked to the way it takes delivery times into account. The way delivery time are handled by the manufacturing PMI must be differentiated according to type of shock, so that the index can better reflect industrial activity.
We propose a method that will detect the presence of a positive demand shock or a negative supply shock. The manufacturing PMI is then rectified according to the shock. It is also possible to recalculate the manufacturing PMI by a principal components analysis (PCA), based on all questions available in the S&P Global survey.
Unlike the published PMI, the ajusted PMI shows the slowdown and subsequent drop in German industrial production from the end of 2021. It indicates that manufacturing output should continue to diminish towards the end of the third quarter.
