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Economy in Brief

Global Trade Slows As Manufacturing PMIs Ease But Hold to High Levels
by Robert Brusca  January 3, 2022

Most of the manufacturing PMI readings eased in December as shown in Table 1 below. For the 14 reporting entries in this table, nine worsened and five improved.

Over three months, compared to six months, nine weakened and five improved. Over six months compared to 12 months, 11 weakened and three improved. Over 12 months compared to 12-months ago, all entries are higher except for one (Brazil).

As an assessment of momentum, this is not a good set of results. While conditions broadly are better over 12 months compared to 12 months earlier, over three months and six months most show some slippage.

Before gnashing and grinding our teeth over this slippage, let's note that the readings overwhelmingly cluster at levels above their 50th respective percentile queue standing (above their respective historic medians) with only one reading (Brazil) below its 50th percentile queue standing. Two entries have standings in their 90th percentile, four are in their eightieth percentile, five are in their seventieth percentile and one each lies in the 50th and the 60th percentile decile on a queue standing basis.

On balance, these are all very solid -and for the most part- strong readings.

However, if we trace results back to January 2020 and assess the net changes from that point (from nearly two years ago), only two entries have manufacturing PMI increases of 10 points or more; those two are the EMU and Germany (and that represents some double counting since Germany contributes importantly to the EMU reading). Only three have increases of more than five points and less 10 points (the U.S., the U.K., and Japan). Of the remaining eight, all show some improvement from January 2020 except Brazil that is 1.2 points lower on balance.

The levels and momentum data show that conditions compared to a year ago are broadly higher. The percentile standings on comparison with the last five years are relatively strong and that is a robust result. Yet, from 2020 to date, there is little increase exhibited on balance across most manufacturing PMIs. This is a mixed bag of results with relatively solid results reported on somewhat fading momentum and against a background of shallow improvement for most since early-2020.

Table 1

Table 2 shows the distribution of manufacturing PMI values proportionately by month and for a number of other periods. These are comparisons of the absolute levels of readings at various points (or averages) in time. What emerges from this comparison is a more upbeat assessment as in December there is a relatively high proportion of observations in the 55 to 60 PMI cohort at 50%. The percentage logged in December in this higher cohort is extremely high.

The 'normal zone' of activity with PMIs in the 50-55 range has slipped over the last three months and is lower than three-month but above the six-month to 12-month sequential comparisons – and is roughly comparable to longer comparisons. But whatever weakness is found in the 'normal range' is balanced by the proportionally higher readings in the higher cohort reported above.

The uneven 'normal zone' proportion is also a result that is to be discounted since there are fewer 40 to 50 PMI readings proportionately in December than in November (although slightly higher than in October). The 40-50 cohort is also much less represented than in earlier periods. The percentage is especially low in comparison with some of the more long-dated averages.

The bottom line for December and this survey of manufacturing PMIs is unanimous that level readings are solid-to-strong and with little actual weakness. Not only are level readings a plus but there is substantial breadth to the good news on manufacturing PMI levels. However, the chart at the top of this report on global shipping volumes is a warning about what the momentum readings are picking up.

Table 2
*Under usual circumstance, 18 countries report to this table. For December 2021, Canada, Mexico, Vietnam, and China are missing.

The Baltic Dry Goods Index fades
While the Baltic Dry Goods index had recovered strongly as of October 2021, it is now in an unwinding mode as it has slipped back to the sort of readings it was generating in April 2021. We know that the Omicron variant is highly transmissible and has kicked up its heels globally. Infection rates in Europe and in the U.S. are particularly elevated and have been rising fast. NYC, where I live, has been hit very hard, including areas of the city that in past had been spared a lot of the infection, largely because of a high incidence of vaccination. That no longer seems to matter as break-through infections are common. Conditions are bad enough in the City that a number of firms that had been pushing for a return to the office have backed off that stance. The economy is definitely being affected.

While the Omicron variant is extremely transmissible, it has not proved to be as dangerous to the health of those that get it. There is a de-linkage between infections and hospitalizations and deaths compared to earlier variant relationships. Yet, health officials remain wary. It is clear from the foot- and auto-traffic in the city and the long lines at the testing centers that have mushroomed on nearly every other corner, that people are taking the risk seriously. Globally I suspect the same is true.

There is a question about what all this means. Some think that the Omicron virus is a ‘God-send’ that is a highly transmissible variant that is so benign that it can infect people and give some a bona fide immune response without much danger. I can report that I finally got Covid myself as did my family and while we all had somewhat different experiences there was not much upper respiratory infection nor did we experience much of any fever. If we are ‘an example’ of what happens, this is a much less impactful than the earlier variants that some of our friends acquired and that they found to be so debilitating. Some scientists think this may be the last run of infection. Frankly, no one has any way to know that; but the trending certainly seems to be working in that direction. The facts of what the infections are and what they develop to be in the future will continue to be very important for setting the tone for global economic growth in the months and year ahead.

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