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Economy in Brief

Global Composite PMIs Show Broad-Based Improvement
by Robert Brusca  February 5, 2020

Among the 23 PMI readings in January, only four are below 50 and only eight show month-to-month deceleration. (This count excludes the first three regions at the top where timely January readings are not available and December values are inserted for the sake of comparison in rankings.) In both December and November, 9 readings were below 50 and the number decelerating month-to-month was in double digits in each case.

Standings review
Among the 23 entries below the aggregates at the table top, only three of them have rankings in the top 50% of data since January 2015. The highest rankings are in three of the four BRIC countries India (100%), Brazil (85.7%) and China (51.0%). The U.S. has a 25th percentile standing, EMU has a 10th percentile standing and Japan has an 18th percentile standing. The unweighted average of the standing for the U.S., U.K., EMU and Japan is at 19.5%. The developed economies are not doing well.

Rankings of global aggregates
The global aggregates whose January values and rankings reflect circumstances from December show weak standings. Still, the current rankings when the fresh January data come in are not likely to change those standings very much month-to-month. The rankings show very weak readings for developed economies with much higher rankings for the emerging markets. The paragraph above shows the reason: the strength in a very few BRIC countries. While the developed/developing rankings are as different as night and day, the raw diffusion values are only one diffusion point apart. What this suggests and what is true, is that the emerging markets have been weaker than the developing countries for this entire period from January 2015 onward. The emerging economy raw score’s rising above the raw score for the developed economies has really only been in effect since mid-year last year and at that by a small amount. The developed economy group in January is about four percentage points below its average diffusion reading since January 2015 with the developing group nearly one percentage point higher than its average. And during the period, the emerging group’s average has been nearly 3 percentage points weaker than the developed country group. As a result, the rank for the period exaggerates the differences in conditions between developed and emerging country groups. As always, the rankings are not absolute but are relative to the past; however, the relative readings sometimes distort the sense of weakness or strength- as is the case this month.

Since January 2015, Ireland, Sweden, and the U.S. have had the strongest conditions of the whole period. The weakest on average have been Hong Kong, Egypt and Brazil (China also ranks low, 17th out of 23). These low rankings for the period-averages compared across countries help to cause the current readings in emerging countries to rank stronger since the historic comparison is easier. Brazil, China, India and the U.K. are the only countries in the table with a higher current standing that their respective historic average.

For most countries, the current reading is weaker than its average or median. The rankings provide a measure of that weakness. The few countries that have above median or average readings still are not showing much strength; the low diffusion readings tell that story.

The standings or rankings are useful, but they can also be misleading. The above discussion is offered to clarify their message this month.

Momentum in diffusion
Beyond that, there is the question of momentum. Out of 23 readings, 12 show a weaker three-month average than a six-month average. Fourteen countries show a weaker six-month average than a 12-month average. Twenty countries show a weaker 12-month average than the 12-month average of 12-months ago. The degree of sequential weakening has slowed. In January only four diffusion readings are below 50 (showing contraction); 9 countries show averages below the 50 mark in November and December. The manufacturing sector data show much more weakness and more widespread weakness than the composites and the services sectors. But in forming the composite, the services sector gets a larger weight. Still, what we see here is evidence of a great deal of weakness remaining in play. The median reading for the grouping of 23 ticked up to 50.9 over three months from 50.8 over six months and it is as high as 51.2 in January alone. Recall that 50 is the line the separates growth from decline in the PMI framework. The standings remain low and the momentum is poor.

Virus perspective
The coronavirus remains as a wild card in all this. There are some suggestions that there might even be a remedy to help fight the virus. If that were so, the outlook would quickly become much clearer and brighter. But at this point, it is too soon to tell. The outlook is still very uncertain and the PMI data are not clarifying the outlook. If the virus remains potent, further slowing is likely. Apart from the virus, it is unclear how much momentum the global economy has. There is a cloud over every economic report that is being released. Only time will disperse it.

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