Manufacturing PMIs Continue to Move Higher But the Virus Spreads

The manufacturing PMIs show that improvement vs. deterioration trends month-to-month are pretty even for November with nine reporters lower, eight higher and one unchanged (Mexico, by assumption, using October's data for November to complete our grid of data). In October, twelve reporters were improved month-to-month, the same as in September. Over three months the average of only four manufacturing PMIs weakened compared to their six-month averages: France, Russia, Malaysia, and Turkey. Over six months only one average weakened compared to 12-months; that was Mexico. However, the 12-month average is broadly lower than its average for the previous 12-months as twelve PMIs are lower on that basis. Point-to-point changes find only five PMIs weaker in November compared to January (pre-Covid-19). Those laggards consist of France, Mexico, Russia, Malaysia, and Vietnam.

In addition, we can look at the PMI levels as a feature that is distinct from the momentum comparisons made above. In November, there are six PMI readings below 50, indicating output declines are still in play. This compares to five in October and six in September. The three-month averages find five below the level of 50, seven over six months. Fifteen 12-month averages are below 50. There has been progress made on that front.

The final metric by which to assess these PMIs is the rank or queue standing. This column of metrics positions the level of each PMI in November in a queue of readings back to January 2016 expressing the result in percentile terms. As of November, the euro area percentile standing is at its 61st percentile, above its median for the period (the medians occur at a percentile standing of 50). The queue standings for five broad groups at the bottom of the table show values ranking from 65.6 percentile (for the overall group) to 73.3 percentile for the BRIC countries. All of these groups show improvements in train for the averages from 12-months to six-months to three-months. All these five groups also continue to show progress and improvement month-to-month for October and November except for one backtracking for the BRIC aggregate in November.

Today the OECD cut its outlook projecting the global economy to shrink by 4.2% this year and to rebound by 4.2% in 2021. Despite the equal percent changes in this sequence of forecasts, these still leave the global economy weaker on a net basis in 2021 and do not restore growth to its pre-pandemic levels. In terms of forecasts changed, the OCED did tweak its 2020 estimate higher but also reduced its 2021 estimate from what had previously been a projection for growth of 5%. The OECD sees a more drawn out recovery for Europe. It, of course, focuses on the role of vaccines and how they are rolled out as crucial to the growth outcome. It continues to refer to recovery as a path that remains long and difficult despite the presence of vaccines.

The PMIs in the chart continue to show momentum rising as PMI levels are restored to their pre-pandemic levels and continue to advance. But in the table, there are hints of scattered troubles even in this matrix of data. The manufacturing sector is simply the best performing sector and has been able to deal with chronic virus issues more easily than the service sector. Of course, reduced demand overall has still nagged at manufacturing recovery. But when we get the services PMIs, we will be getting a look at the part of these economies (for those that report services separately) where the virus more directly undercuts business. With winter coming, there is an added threat to businesses that have been pushed to conduct more of their affairs outside and now will be harder pressed to carry on in the grip of winter – for those countries about to experience the extremes of that season.

On balance, the existence of vaccines that appear to be viable probably make the risk of backsliding a risk that is smaller and more of a short-term problem. However, with growth still impeded by the virus and with firms financially weakened, risks of backsliding should not be dismissed. As things stand quite apart from making forecasts, there are simply a lot of businesses that are still closed or running at half speed or less and quite a number of people still out of work. And none of that is going to spur recovery, those circumstances require fixing one way or another and that is a global problem.