Flash PMIs Mixed on the Month

The S&P flash PMIs for November show mixed results for the five early reporting composites that include the European Monetary Union, EMU members Germany and France, the U.K., and the U.S. Three of those five show stronger PMI composites while two show weaker composites. Stronger composites are reported by the European Monetary Union as well as Germany and the U.K. Weaker composites are reported by France and the U.S.

In the European Monetary Union, the strength in the composite occurs because of a stronger manufacturing reading. In Germany, the stronger composite also is the result of a stronger manufacturing reading. In the U.K., the strength is technical since the two components are unchanged on the month- the improvement results from rounding.

France shows a weaker composite reading despite a stronger manufacturing reading because services are weak, and the service sector reading dominates the manufacturing improvement. In the U.S., the composite is weaker on the back of manufacturing and services both weakening month-to-month.

These results follow October where all the sectors were weaker month-to-month except for services in Germany. In September, there was broad weakening: the U.S. was an exception with strengthening on the composite, manufacturing, and services. The U.K. had a stronger manufacturing sector in September. France had a stronger composite and services reading in September, while all the rest of the components and composites were weaker month to month.

The sequential averages are calculated on finalized data so they exclude data from November; they show weaker readings for 3-months compared to 6-months, and weaker readings for 6-months compared to 12-months for all the composites and all their components. Over 12 months, there was a broad weakening as well with only one composite improving, that's for France, while the services sector is improved for the European Monetary Union, France, and the United Kingdom.

Weakness continues... This continues to be a period of substantial weakness even though there's slightly more strength in November than what we've been seeing in recent months and on trend. There's very little significant increase; there are some technical rebounds on the month but nothing that looks truly impressive.

All the queue (or rank) standings for all the composites and for all components have standings well below their 50% mark which marks their historic medians for this period. The strongest reading in the table is the 27.6% standing for manufacturing in Germany, the second strongest is a 20.7 percentile standing for services in France, followed by 19 percentile standings for the European Monetary Union for its manufacturing and services sectors. Except for the German reading, these are all readings in the bottom one-fifth of their historic queues of values over this span, a period that goes back to February 2018.

The rankings by sector are consistently low with manufacturing for this group averaging a 14 percentile standing while services average a 15 percentile standing, and that combination is so weak that the composite averages a weaker 11.7 percentile standing.

The column labeled 'percentile' places this month's observations in a percentage position between its highest and lowest readings; these assessments are consistently higher than the queue standings (and less demanding). They are derived by looking at only three readings: the current reading, the highest reading on the period, and the lowest reading on the period. Of the 15 readings in the table, six of them have percentage standings in their historic ranges of value that are below their mid-range values (below 50%). The U.S. shows readings below their mid-range for the composite and both components. Apart from the U.S., composite readings have a standing the range from the 64.6 percentile in Germany to the 80.7 percentile in France. The manufacturing readings tend to be weakest with three of the four non-U.S. rankings below their historic range mid-points. The service sector rankings again excluding the U.S. are between the 65.9 and 80.4 percentiles among the four reporters in the top of the table.

Percent of range vs. queue standings The higher readings for the percent-of-range standings for the most part reflects that, in downturns, these readings tend to get much weaker than they are now. While the queue standings tell us the readings are 'rarely weaker' the percent-of-range readings tell us that, in recessions they will still get much weaker than this. For the composite the range average is at its 67th percentile; for manufacturing it is at the 45.9 percentile; for services it is at its 68th percentile. While the queue standings tell us conditions are rarely weaker the percent of range standings see this as 'garden-variety' 'queue' weakness not cataclysm – at least not yet.

Summing up While there is less weakness this month than in recent months, the upshot is that conditions in the S&P PMI metrics remain weak and they're weak across the board. The sequential averages show a clear weakening in train and the percentile standings show assessments that reveal not just relative or momentum weakness but absolute weakness. Inflation continues to be a problem that central banks are hammering away at; we can expect that these economic circumstances are going to worsen in the months ahead. We keep reading of hope against hope that recession can be avoided but given the task at hand to contain inflation, given the current weakness of these economies and inflation's stubbornness, recession seems to be on the menu in the coming months.