[ForexNews]

Industrial production data for June and the PMIs for July all came in stronger than expected, and suggest that the economy is currently transitioning from negative to positive growth.

The services PMI rose to 53.2 in July, up from 51.6 in June and well above expectations. The new business index, which had dipped marginally back into contraction in June (49.7), rose to 52.7, although, somewhat surprisingly, the business expectations index nudged down to 69.3, from 70.1 in June. Despite higher activity, the employment index remained subdued at 43.6, little changed from its level over the past three months. The implication is that activity in the sector is recovering, but the recovery remains somewhat tentative.

The implication is that the economy moved into positive growth in June and accelerated in July. However, we would note that the PMI has had a strong tendency to overstate actual GDP growth in recent quarters, which makes us cautious about drawing a strong conclusion about the precise timing of the transition from contraction to expansion. Nevertheless, the signs are that the deepest recession since the Great Depression is over.

Industrial production rose by 0.5% m/m in June versus a consensus expectation. That took the annual rate up to -11.1% y/y, from -11.9% in May. Within this, manufacturing output rose by 0.4% m/m (-11.7% y/y), in contrast to the consensus forecast of a fall of 0.1% m/m. The recent path of output suggests that there is some positive momentum in manufacturing activity, and the manufacturing PMI reinforces the view that the sector is also moving from negative to positive growth.

IP is now estimated to have fallen by 0.6% q/q in Q2 versus an estimate of -0.7% in the preliminary GDP estimate. As such, the news in today's data would not be sufficient to prompt an upward revision to the preliminary GDP estimate of -0.8% q/q for Q2.