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Economy in Brief

Upbeat Manufacturing PMIs: An Overview
by Robert Brusca  November 1, 2021

The 17 manufacturing PMIs listed in Table 1 below show a mixed performance in October that is tilted more to 'better' than to 'worse' as 10 of the 17 observations have improved month-to-month. Clearly this tilts the trend to better on the month as the three-month assessment finds only five countries/regions as 'better.' This, of course, means also that the tilt is still very tentative. Over six months compared to 12-months, the tilt to 'better' is 8 of 17, short of a majority. And the nature of the split is quite evident on the table as the EMU, Germany, France, the U.S., the U.K., Canada, Japan, and Turkey - a group heavily weighted to North America and Europe- shows most of the improving. Among Asian countries, only Japan is 'better.' Brazil is 'worse,' Russia is 'worse' and most of the Asian countries are worse. However, on the 'long view' 12-months ago compared to 12-months before that, all countries and regions improve.

These rankings are at their largest from January 2017, a period of nearly five years. The good news is that few countries are weak. Ranked on this timeline, only two countries China and Brazil are below their ranking of 50, which places them below their respective medians on this period. However, China and Brazil are relatively large countries so that is not a good development. But Indonesia has its highest reading over the entire period, and it is a very populous country - that is good news.

Looking to see what countries have recovered best to their pre-covid levels and beyond, we find that China and Turkey are the only two countries with lower manufacturing PMI readings in October 2021 than they had in January 2020. Only the euro area and Germany have expanded on that timeline by ten points or more. Indonesia, Canada, and the U.K. have diffusion point increases on the order of 7 to 8. The U.S. is up by 6.5. Recovery has been broad-based and largely inclusive but not strong.

Table 1

Table 2 arrays the data underlying Table 1 according to the level of the manufacturing PMI reading. At the far right, the distribution of the data from the last four years is summarized. Over that period 45.8% of the observations (that is for over four years and 18 countries/regions, 216 observations) have been in the 50-55 region; only 14.2% have been higher in the 55-60 range with a small 4.6% portion at or above 60. Over this period 32.3% of the readings have been in the 40-55 range. Only 2.7% have been in the 30 to 40 habitat and just 0.3% have been below a reading of 30.

Those data define the baseline for this group over the last four years. By comparison, this month 50% of the observations are 50-55 with 44.4% in the higher 55 to 60 range. Only 5.6% of the readings are in the 40-50 range. This is much better than the four-year average and better than the three-month, six-month or 12-month averages. October was a good month despite being mixed as to its month-to-month changes.

These distributions show that there has been an improvement in manufacturing this month and it brings a distribution of the level of activity that is higher than it has been for some time. The readings are clustered in the growth zone above PMI value of 50 and the firm to strong zone above that with very few readings in the sub-par zone and none that are especially weak.

Table 2

The chart shows a small group of three large economic regions. Their manufacturing PMI readings have recovered from the Covid disruption, rebounded, and all are now set on a course of weakening. China recovered the fastest and been losing momentum gradually for the longest period. While this month shows a month-to-month pickup, we must wonder if the pickup will last given the history and China's out in front precedent of ongoing decay.

The virus is a non-factor in some countries and an important factor for others. China is trying for eradication (zero tolerance), but it is seeing new virus outbreaks that has caused some regional lockdowns. Thailand, Australia, and Israel have recently eased restrictions. But Eastern Europe is seeing record numbers of infections. Countries/areas are experiencing differential virus effects and that is affecting growth as well as PMI readings.

What we thought vs. the way we are...
At one point, we thought we might be past virus effects by this time- at least in some places. But instead, what we have found is that the vaccines are not the magic bullets we once thought. Many developing nations have had little vaccination and in the more-developed high-income countries where vaccination is more common there are more breakthrough infections among people who already are vaccinated. Health organizations still promote vaccines and booster shots. But vaccination for many now seems to lose a great deal of its protection after 6 to 8 months. Vaccination does not block reinfection, nor does it stop transmissibility. Yet, vaccination remains the front-line response to Covid. Several other pharmacological choices are available but not all of them have cleared health protocols. It might be a suitable time for heath organizations to look at some of the pharmacological choices it has shunned to this point because the efficacy and even functionality of the vaccines is increasing something that is coming under scrutiny.

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