HomeIvey PMI Back into Expansionary Territory

Ivey PMI Back into Expansionary Territory

The Canadian Ivey PMI released yesterday revealed a strong comeback into the expansionary territory. It confirms the correlation between the Canadian and United States economies, as PMI’s in both countries bounced sharply in the previous month. 

Prepared by the Ivey Business School in Canada, hence its name, the Ivey PMI is a monthly release showing the variation in economic activity and covers all sections of the Canadian economy. Traders and investors value the IVEY PMI index because it has been found that it has predictive powers for forecasting the macroeconomic activity in Canada, in particular the GDP.

Not Your Regular PMI

Despite what the name implies, this is not your regular PMI. In contrast with the ISM data published in the United States, the Canadian Ivey PMI covers the complete Canadian economy without separating  manufacturing and services. Moreover, it is based on end-of-month data and not mid-month data. Furthermore, respondents are asked to answer a single question referring to purchases compared with the previous month.

Finally, it includes both private and public sectors. Nevertheless, the interpretation is the same – the fifty level remains the line in the sand, differentiating between expansion and contraction.

June 2020 Ivey PMI release beat both the previous month data and the June 2019 – it came at 58.2 when compared with 39.1 in May 2020 and 52.4 in June 2019. It shows a strong comeback of the Canadian economy, as businesses reopen and consumers begin spending, albeit timidly.

Details of the report are even more encouraging. For example, the Ivey Employment Index reached 52.8 in June, showing much higher employment levels than the previous month. Moreover, the Ivey Prices Index also increased, reaching 56.4, the third consecutive monthly increase since the coronavirus pandemic began.

On the negative side, inventories reached the highest level in at least two years, indicating that much of the increase in the prices index is due not to strong consumer demand but businesses hoarding inventories for the moment.

All in all, a good report considering the circumstances and what the market expected. Compared with the 50.2 expected, the current 58.2 crushed the forecast by a mile. However, the data did not result in a bid for the CAD pairs, despite coming in better than expected.

One explanation is that the market participants expected a strong number based on what the ISM in the United States showed. Another is that summer trading is already here and ranges dominate.

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