Recent concerns about weakness in emerging markets have sparked conversations about the potential for any economic weakness to infect developed economies via trade. However, it is helpful for investors to remember that developed market growth tends to be driven by services, rather than manufacturing, making it less exposed to the export cycle. Furthermore, outperformance in the service-oriented areas of the economy is a strong signal for overall growth. We have noticed that the service-related industries in developed markets, particularly in Europe, have grown much faster than their manufacturing counterparts in recent months. As shown in this week’s chart, the Purchasing Managers Indices (PMI), which are broken down into services, manufacturing, and composite indices, offer us a useful way to examine these sectors on both an absolute and relative basis. Furthermore, while the official figures are published monthly, flash readings are released mid-month, which can give investors an idea of where growth may be headed. The flash estimates released last week suggest that services have continued to drive growth across the developed world, a trend that looks set to continue into the end of the year.
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