Global PMIs Tell a Story of Slowing Growth in August

The unweighted average and median composite PMIs across 22 global economies both eased slightly lower in August, but both measures stayed above 50 showing ongoing expansion. However, with the average at 50.9 and the median at 51.2, there is not a lot of strength in this mix.

Absolute vs. relative strength
The far-right hand column in the table evaluates 'relative strength' by ranking each reporting unit placing its current value in a ranked matrix of all values from January 2016 onward. On this timeline, four countries have very strong readings in the top five percentile of their standings. These are: the United Kingdom, Russia, Brazil and China. The U.K. and Russia have relatively and absolutely high PMI readings in August with the first and second strongest composite readings in the table. The U.K. PMI stands at 59.1 and Russia is at 57.3. While Brazil and China have very high PMI scores relative to their own respective histories, they have the seventh and fifth, respectively, highest readings in this 22-country sample in August. Brazil's reading is 53.9; China's is 55.1. While the U.K. and China have very strong readings in absolute terms, the Brazil and China rankings are strong probably only with respect to this recent timeline comparison, a time when both of these countries have struggled with growth and the historic comparison is relatively easy.

The distribution of weakness and strength vs. normalcy
Out of 22 countries, only four have readings in their top 10th percentile; then there are only two others with standings in their top 50th percentile, above their medians. Those two we could say are experiencing 'near normal' economic conditions (the U.S. and Egypt). But this, of course, is all in gross PMI terms and we know from the unemployment rate alone that the U.S. at least is not even back near normal let alone at normal. All the rest are below their median values with standings below their 50th percentile. There are seven countries with PMI level standings in their lower 10th percentile. So these are still weak results, mostly above 50 in PMI value, but still weak.

Backtracking is real
In August, there are ten PMIs below the value of 50 telling us that the private sector is contracting. And there are 14 entries that are weakening month-to-month. The number of observations below a PMI level of 50 remains in the ballpark of where it has been in recent months and compares to its three-month average. But the number of entities slowing month-to-month is sharply higher; it is now a large proportion of PMI values that have slipped period-to-period. That increase in August is up to 14 (out of 22) compared to a value of 2 in July and of 'one' in June. Comparing three-months to six-months, the number of slowing entities was zero. So this statistic confirms what we have been inferring: that there is real backtracking in place.

The approach to handling the virus is crucial
The spread of the virus is a real and true issue. While the virus does not kill a large proportion of those in infects, it can have been some ugly side effects. Others who are infected respond as if untouched. The discrepancy is maddening. And there is generally a great fear of getting this disease which is hard to contain. Scientists continue to debate how it is transmitted. It can be transmitted by people with no outward symptoms and that is what makes containment so difficult. Globally, most places have opted to try to stop the spread of the virus. Sweden, among major industrial countries, stands alone as a country not imposing national lockdowns and encouraging the virus to spread to convey eventual herd immunity. Sweden's approach seems to be bearing fruit. The rest of the world, so long as it fears infection, will be subject to ongoing episodes of lockdown until or unless a vaccine is produced.

Growth is not about economics; it's about virus
This puts global growth increasing in the hands of the virus depending on how it spreads -and that is disturbing. While the impact on PMI averages has not been marked, the breadth of the slowing is marked. Growth remains at risk and it is now clearly in a slowing mode and this is even in the face of what have been some massive efforts by central banks and fiscal policies to support or boost growth. Monetary policy is doing most of what it can do. Arguably whatever further monetary steps are taken will not be as potent. On the fiscal side, there are already concerns about the damage that has been done by fiscal excess to future growth and that is leading to some hesitancy to support ongoing fiscal aid despite the clear need for more such assistance. It is a grim prognosis but not one that global equity markets seem to put much weight on.