HedgeTalk: A road to Recovery?

By: John Trefethen, Director & Co-Founder

While the path to economic recovery is far from certain, there have been smatterings of optimism that, barring another Covid-related shutdown, the economy will continue to improve. The most recent indication for optimism is the purchasing managers indexes (“PMI”) for manufacturing. The PMI is a measure of the prevailing direction of economic trends in manufacturing and is based on a monthly survey of supply chain managers across 19 industries. The graph below shows the monthly PMI going back to January 2018.


Both the US and EU hit their low point in April after their respective economies were essentially shutdown. Japan hit their low point in May. US manufacturing has rebounded to pre-shutdown PMI levels and EU manufacturing has rebounded to a level that exceeds their pre-shutdown level. Japan has been slower to rebound, but they also experienced less of a slowdown in manufacturing relative to the US and EU.


Factory numbers are among the first positive signs for economic growth in the third quarter. The US gross domestic product (“GDP”) is expected to follow in positivity and post its best quarter on record for the third quarter, albeit after its worst quarter on record, according to IHS Markit. Below is a summary of the quarterly GDP going back to Q1 2014.

Note: HIS Market is tracking a 20.1% annualized gain for 3Q GDP

Is the economy on a road to recovery? By no means is it guaranteed. Several things could derail it including another COVID-driven shutdown of the economy as well as the lack of a second US federal stimulus package, or one that is insufficient at addressing the many parts of the economy that are still suffering. But it is encouraging to see some positivity as we begin Q3 of a year that has been unlike any other, and hopefully these are signs that we are indeed on a road to recovery.

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