The United Kingdom is facing the same dilemma as other central banks as core inflation remains stubborn and headline inflation has dived sharply. The weakness in headline inflation has to do with its commodity components; we can particularly point to oil. On the other hand, core inflation, which shows some signs of moderating across most highly developed economies, shows a much slower progression, especially in the UK.
Introducing
Robert Brusca
in:Our Authors
Robert A. Brusca is Chief Economist of Fact and Opinion Economics, a consulting firm he founded in Manhattan. He has been an economist on Wall Street for over 25 years. He has visited central banking and large institutional clients in over 30 countries in his career as an economist. Mr. Brusca was a Divisional Research Chief at the Federal Reserve Bank of NY (Chief of the International Financial markets Division), a Fed Watcher at Irving Trust and Chief Economist at Nikko Securities International. He is widely quoted and appears in various media. Mr. Brusca holds an MA and Ph.D. in economics from Michigan State University and a BA in Economics from the University of Michigan. His research pursues his strong interests in non aligned policy economics as well as international economics. FAO Economics’ research targets investors to assist them in making better investment decisions in stocks, bonds and in a variety of international assets. The company does not manage money and has no conflicts in giving economic advice.
Publications by Robert Brusca
Japan| Aug 15 2023Trade Drives a Jump in Japan’s Q2 GDP to 6%
Japan's GDP in the second quarter of 2023 jumped to a 6% annual rate after gaining 3.7% at an annual rate in the first quarter. These two growth rates are a sharp breakout from the 2022-Q4 growth rate of 0.2% and the Q3 growth rate of -1.2% for real GDP.
However, on close inspection of the numbers, there's not much in this GDP report that is terribly impressive about the performance of the domestic economy nor does the domestic economy seem to be the source of inflation pressures.
The major GDP accounts Quarterly annual rates of growth show private consumption falling at a 2.1% annual rate with public consumption up at a 0.4% annual rate in the second quarter. Those are weak metrics. Gross capital formation produces a second positive growth rate in a row in the second quarter, rising at a 2.2% annual rate compared to the first quarter when it had grown at a 6.8% annual rate. Spending on capital equipment in the second quarter was up at only a 0.1% pace after a very strong 7.6% growth rate in the first quarter. Housing was strong, with real spending growing at a 7.7% annual rate, stepping up strongly from solid growth rates in the previous two quarters as the housing recovery continued. Net exports exploded in the quarter, rising by two trillion yen with the export/import gap accounting for all the quarter-to-quarter increase in GDP by itself. Exports grew at a 13.6% annualized rate after falling at a 14.4% annualized rate in the first quarter. Imports fell again at a 16.2% annualized rate after falling at an 8.7% annualized rate in the first quarter. Domestic demand fell at a 1.1% annualized rate after rising at a 4.6% annualized rate in the first quarter.
The active forces at work The sharp turn-around in GDP net exports has to do with the sharp reversal of exports in the second quarter along with the sharp reversal in imports as those two changes worked in tandem to magnify the impact on the current account balance (GDP-net exports). The contribution of net exports to GDP in the second quarter is greater than the increase in GDP on its own and the change in net exports from a deficit position in the first quarter is greater still. That change is being driven by some unexpected strength in exports, although exports, if we look at year-over-year data, are not performing in an exceptional way in the second quarter. Year-over-year export growth moves up to 3.2% in the second quarter compared to 1.9% in the first quarter, but that's still weaker than the export year-over-year growth rate in the third and fourth quarters of 2022. The main contribution of exports is that they jumped back to trend growth so quickly after having had a very weak first quarter. Imports, on the other hand, are showing some pronounced and sequential weakness; imports grew sharply in the third quarter of 2022, but after that they've declined quarter-to-quarter for three quarters in a row and they have logged progressively larger rates of decline. It's in the import growth rate where we see the real trend because year-over-year import are lower by 1.5% in the second quarter; they had been up by 4.1% in the first quarter, and in the previous two quarters, year-on-year imports grew at annual rates of about 10%. There is a clear import slowdown and contraction in progress linked to weak domestic demand conditions.
Strength though weakness- really! Japan's GDP report is basically a study in irony. Japanese GDP growth is strong because Japanese domestic demand is weak <- not a typo or a mistake. Domestic demand falls at a 1.1% annual rate in the second quarter with private consumption falling at a 2.1% annual rate and with public consumption weak at only a 0.4% annualized gain. Capital formation for plant & equipment also slowed sharply to only a 0.1% pace although gross fixed capital formation grew at a 2.2% annual rate and housing stepped up to log a strong growth rate at 7.7%. However, adding these all together, we get very weak domestic growth as is evident in the aggregate figure. Weak domestic demand means weak imports, explaining the sharp drop in imports that imparted a boost to GDP, hence strength though weakness! Meanwhile, exports picked up in the quarter and moved back to trend growth.
Year-on-year trends Year-over-year figures show relatively weak domestic demand growing at only a 0.9% annual rate in the second quarter, with private consumption growing at a 0.3% annual rate and public consumption also at a 0.3% annual rate. The capital formation figures and housing show growth rates in the neighborhood of 3 to 3 ½ percent per year. The year-on-year growth rate for GDP in the second quarter moved up to 2.1% from 1.9% in the first quarter and it was boosted by 3.2% increase in exports and once again - ironically – ‘helped’ by a 1.5% decline in imports, since imports are a subtraction from GDP. All things equal weaker imports produce stronger GDP.
Finland| Aug 14 2023Inflation in Finland Ends Its Tranquility; Is Finland a Bellwether?
The chart (on the left) is a reminder about how inflation works. This chart works for Finland; it works for most countries showing the tracking of overall inflation against oil prices. The chart shows current developments as well as some from 2016 and 2018 when oil prices flared and had a much more muted impact on overall inflation in Finland. However, the spike in oil prices in 2021 has added to other factors and had a substantial impact on inflation; meanwhile, the subsequent runoff in Brent prices preceded the deceleration of inflation in Finland as well as globally.
Once you have those results, it's instructive to look at what oil prices are doing currently. From the chart (on the right), we can see that the long run down in oil prices has finally bottomed and between June and August oil prices are once again rising. This plot of daily oil prices includes the European free market price of Brent as well as the U.S. domestic price for West Texas intermediate. This turnabout in crude prices suggests that some of the best news on inflation may be over at least for the headline.
Italy| Aug 10 2023Italian Inflation Trends Cool…Relatively
Italy's inflation metrics in July showed a headline for the HICP rose 0.3% after falling 0.2% in June. The core rate was unchanged after rising 0.4% in June. The domestic CPI measure rose 0.2% in July after falling 0.1% in June. And the domestic CPI excluding food & energy rose 0.1% in July after rising 0.2% in June. These comparisons show that the HICP and the domestic inflation metrics for Italy had been behaving much the same in the last couple of months.
If we take a longer perspective, we find that we get pretty much the same readings and trends out of both the domestic CPI and the HICP gauges. For this discussion, I'm not going to repeat the HICP, and I will simply talk about the domestic CPI prices because they are the prices consistent with the detail in the table below.
Sequentially, Italy's CPI headline rises 6% over 12 months, eases to 1.9% pace over 6 months and then picks-up to a 3.1% annual rate over 3 months. The core measure gains 5.2% over 12 months, then slows to a 4.2% annual rate over 6 months and slides further to a 2.9% annual rate over 3 months. Italy's headline inflation rate appears to be cooling although it isn't doing it precisely sequentially; the core measure is showing a decline in inflation that is occurring sequentially.
Sequentially, the details on Italian inflation show broad deceleration occurring over 3 months and 6 months. Comparing 3-month inflation to its 6-month pace, only three categories show an accelerated pace; those are: rent & utilities, education, and restaurants & hotels. Over 6 months inflation is stronger than it is over 12 months in only three categories: alcohol & tobacco, transportation, and restaurants & hotels. Over 12 months compared to 12-months ago annual inflation is broadly hotter across categories; it's lower in only two categories: rent & utilities and transportation.
Calculating third quarter inflation by looking at the July increase over the quarter average in Q2, gives us a properly compounded annual rate of 2.0% for the CPI headline compared to 2.1% for the core CPI. The domestic inflation gauges are showing headline and core inflation running out of neck-to-neck pace that would be completely in-lined with the ECB's 2% target.
France| Aug 09 2023French Trade Trends Show Deficit Contraction
French trade trends show slowing year-over-year patterns for both exports and imports of goods excluding military equipment. While both flows are decelerating, it's imports where growth has turned negative. Imports show negative growth rates over 12 months, 6 months and 3 months. Exports are slowing year-over-year; however, in terms of shorter-term trends, exports show growth of 4.3% over 12 months, growth at an annual rate of 5.3% over 6 months, and growth accelerating to an 11.9% annual rate over 3 months. This is an accelerating short-term pattern that defies its longer-term year-over-year slowing trend.
For exports, the three-component flows depicted in the table {for 1) food, beverages & tobacco, 2) Transportation equipment, and 3) Other} all show positive trends. There are accelerations in progress from 12-months to 6-months to 3-months for all of them. From that standpoint, the strengthening of exports within the last year is a durable trend.
For imports, food, beverages & tobacco hint at some acceleration with very similar 6- and 12-month growth rates between 3- and 3½-percent that then accelerate to 9.6% over 3 months. Imports of transportation equipment, however, show waffling as they grow at a 12.4% annual rate over 12 months, slow to a 3.5% annual rate over 6 months, and then accelerate to a 10.4% annual rate over 3 months; that's a 3-month growth rate that's still below the 12-month growth rate and does not count as a tendency to accelerate. For ‘other’ imports, French trade results show declines on all horizons, but without any clear trend. Other import flows decline at a 13.7% annual rate over 12-months, that decline steps up to a -25.6% annual rate over 6 months, then it trims the speed of decline to -5.5% over 3 months. On balance, the ‘other’ category for French imports simply shows ongoing weakness but without a clear trend.
France’s current account in June swings into surplus after logging a deficit in May and rather persistent deficits in previous months. One year ago, imports outgained exports on a growth rate of 35.8% for imports compared to 20.7% for exports. However, over the last 12 months, that worm has turned, and imports are falling at a 9.2% annual rate, while exports have advanced at a 4.3% annual rate. The changes in these growth rates are what underline the swing in the current account from deficit territory into surplus territory. France’s trade balance continues to be in deficit in June. However, the deficit in June is only about 60% the size of the deficit averaged over the last 12 months.
Japan| Aug 08 2023Japan’s Economy Watchers Index Waffles Higher
Japan's economy watchers index moved up to 54.4 in July from 53.6 in June. Six of nine of the component readings improved month-to-month. The sector readings did not improve on the month for eating and drinking places, for services, or for housing.
The future index also improved month-to-month, rising to 54.1 in July from 52.8 in June. Only one component reading in the future index backed off month-to-month; that was for manufacturers.
Over 12 months and over six months, all the point-to-point changes are positive in the current index; however, over three months we see a decline in the headline as well as in five of the components. Over 3 months, there's weakening in households, eating and drinking establishments, services, nonmanufacturers, and in employment overall.
The future index shows similar results. Over 6 months and 12 months, the headline for future readings and components all improved. However, over 3 months the future reading is lower and five of its individual readings are lower as well. The 3-month change in the future readings is lower for households, retailing, services, manufacturers and employment.
However, the economy watchers indexes have come a long way. The survey is a diffusion index so that it's queue standings have substantial meaning. The current index has a 94.1 percentile standing on data back to 2002 and the future index has a 92.5 percentile standing; both of these readings are quite high even though they derive from diffusion values with readings of only 54.
In the current index, the strongest readings are for households, in the services sector, for retailing, for eating and drinking places, and among corporations for nonmanufacturers. The weakest queue standings are in housing, for employment, and for manufacturers.
The future index shows its strongest readings with 90th percentile standings or higher: eating and drinking places, retailing, services, households, nonmanufacturers and corporations overall. The weak readings in the future index are housing, employment and manufacturers. The weakness is in the same sectors as those that lag the most in the current index.
Germany| Aug 07 2023German IP Heads South...
Despite a previously issued strong orders report (a report that is summarized in the table below), German industrial output backtracked in June, falling by 1.5% month-to-month after falling by 0.1% in May. More broadly, the sequential growth rates show German industrial output lower by 1.8% over 12 months, rising at a 1.7% annual rate over 6 months and then falling at a 5.2% annual rate over 3 months.
In the current month, sector activity in Germany is mixed with consumer goods output rising 1.8%, capital goods output falling 3.9%, and intermediate goods output rising by 0.4%. This pattern of increases and declines is completely the reverse of what each industry reported in May.
Looking at industries over a broader sequential framework, consumer output accelerates from -0.8% over 12 months, to a smaller 0.2% negative growth rate over 6 months, to a solid 7.6% annual rate of increase over 3 months. Capital goods, however, head any other direction. Capital goods output rises by 4.3% over 12 months, declines at a 2.5% annual rate over 6 months, and then declines faster, at a 5.6% annual rate over 3 months. Intermediate goods show a chaotic pattern with output falling 5.4% over 12 months, log a strong 8.2% annual rate gain over 6 months, and then fall at a 2.9% annual rate over 3 months.
The construction sector also shows a chaotic pattern. Construction output fell by 2.7% in June after increasing in May and April. Construction output is down by 1% over 12 months, rises at nearly a 17% annual rate over 6 months, and then collapses to fall at a 3.2% annual rate over 3 months. There is no pattern there.
Manufacturing alone shows a 1.2% drop in output in June after smaller increases in both May and April. Manufacturing output has a chaotic pattern with a 0.4% fall over 12 months, a 1.5% annual rate of increase over 6 months and a 2.5% annual rate of decline over 3 months. The orders figures for manufacturing are strong as we reported earlier with explosive growth rates culminating in a 68.1% annual rate over 3 months. Big-ticket orders in the aircraft sector are responsible for most of that strength. In contrast to the strong orders, real sales in manufacturing fell in June by 1.6% after rising in May and falling in April. Their pattern shows a steady menu of increases, but the 0.4% rise over 12 months eases to zero over 6 months and then accelerates to 6.1% over 3 months. That's a small deviation from what would otherwise be an accelerating pattern.
Other manufacturing gauges for Germany show the ZEW current index weakening sharply in June and weakening from April to May to June while that same index shows improvement from 12 months to six months to three months. The IFO manufacturing gauge shows a steady slippage from April to May to June, but from 12-months to 6-months to-3-months the IFO is firm. IFO’s manufacturing expectations survey slipped decidedly from 96.6 in April, to 90.7 in May, to 84.1 in June. However, the progression from 12-months to 6-months to 3-months shows a step up from 12 months to 6-months and then a small step back from 6-months to 3-months. The EU Commission industrial gauge also shows monthly slippage April, to May, to June, and it shows a confirming slippage from 12-months to 6-months to 3-months. Germany's industrial indicators show us some mixed patterns with a good deal of weakness trending over the last 3 months but with more substantial firmness generally from 12-months to 6-months to 3-months.
Manufacturing in select other European countries shows widespread weakness with declines in output from France, Spain, and Portugal in June, while Norway posted a flat performance. All these countries showed increases in May and three of the four had declines in April. Rates from 12-months to six-months to three-months show a chaotic pattern in France as well as in Spain. There are persistent declines in Portugal that border on deceleration. Norway shows positive growth rates on all horizons; there is only a modest tendency toward strengthening.
Germany| Aug 04 2023Sharp Rise in German Orders Generated by Foreign Sector
German orders surged in June rising by 7% after gaining 6.2% in May and after rising 0.2% in April. This is a particularly strong stretch for German orders. Orders are being pushed ahead by the foreign sector as foreign orders grew 13.5% month-to-month in June after rising 6.8% in May. Domestic orders fell by 2% in June after rising 5.3% in May.
Sequential trends Sequentially, German orders are accelerating, growing by 2.9% over 12 months, rising at a 13.6% annual rate over 6 months then exploding at a 68.1% annual rate over 3 months. This profile is engaged to some extent by both foreign and domestic orders, but it clearly is being driven by foreign orders. Foreign orders rise 8.6% year-over-year, advance at a 30.8% annual rate over 6 months, and then skyrocket at 108.8% annual rate over 3 months. In contrast, domestic orders over 12 months fall by 5%, and then they weaken further, falling at a 7.8% pace over 6 months; however, over the most recent 3 months domestic orders turn around and grow sharply at a 21.7% annual rate.
An unexpected -and probably not lasting- surge in orders The strength in orders Germany experienced in June has come from large orders substantially related to the aerospace industry mostly concentrated from fellow members within the European Monetary Union, augmented by moderate strength from outside the Monetary Union as well. The surge in German orders saw large new product orders rise sharply in June; excluding this surge, new orders fell by 2.6% month-to-month. Orders from other European Monetary Union members grew sharply in June, rising 27.2% on strong demand from the aerospace industry. Foreign orders from outside of the euro area were solid, rising 5% month-to-month. In contrast, German domestic orders languished, and fell on the month.
Just-completed Q2 Despite this strength, in the quarter-to-date (just completed Q2), orders are rising only 0.9% at an annual rate with foreign orders falling at a 0.4% annual rate and domestic orders rising at a 3% annual rate.
Real sales are pedestrian Real sales across sectors exhibit declines everywhere in June. The sector weakness is surprising in view of the strength in orders. For manufacturing, the sequence of growth rates shows a 0.4% gain in real sales over 12 months, flat performance over 6 months, and a 6.1% gain over 3 months. Over 3 months, mining & manufacturing real sales are up by 6.6% at an annual rate; consumer sales fall by 2.4%, with consumer durable sales extremely weak. Capital goods sales rise strongly at a 22.1% annual rate over 3 months, but intermediate goods sales fall at a 6.7% annual rate over 3 months. In the quarter-to-date, real manufacturing sales are rising at a 1.9% annual rate.
Industrial confidence in EMU’s largest economies EU industrial confidence shows worsening. The confidence for Germany, Italy, and Spain, three of the four largest economies in the European Monetary Union, declined in June. France registers a -7.8 reading for industrial confidence in June, an improvement from its -9.2 reading in May, but clearly not enough to create an overall positive signal for France, Italy, and Spain taken together. Over the last 12 months, all four countries show weaker readings in June than they display over 12 months on average. Looking at point-to-point changes over 12 months, the German economy has fared the worst backtracking by 23.8 points over 12 months, compared to Spain losing 10.5 points, Italy losing 9.2 points and France shedding 7.7 points. These confidence measures when ranked on data since 1990 show lower 33- to 42-percentile rankings for all these countries. All the Big Four economies in the EMU have confidence readings below their respective medians- all are weak.
Global| Aug 03 2023Globally Total PMIs Slow But Continue to Signal Growth
The total or composite S&P PMIs for July saw worsening as the global PMI is worsening, emerging markets are worsening, developed markets are worsening and are the weakest of all. This follows a similar performance in June when all three groups showed deterioration although May showed improvement for all three groups.
Sequentially, over 3 months, all three of these groups are worsening, over 6 months they're all improving, and over 12 months the overall and developed markets are worsening while emerging markets are improving.
The queue percentile standings show the global PMI with a 42.9 percentile standing, marking it below its 50th percentile and therefore below its median. The HSBC emerging market index has a 67.3 percentile standing, nudging it up into the top one-third in terms of historic standings. Developed markets have a 24.5 percentile standing, sending them to the bottom quartile of their range. This matrix of data portrays overall poor results for the global economy.
Global| Aug 02 2023Unemployment Rates Remain Low But They Are Not Falling As Much Any More
Unemployment in the European Monetary Union (EMU) held at 6.4% in June, a level that has been stable for three months running. In June, for a group of 12 of some of the oldest EMU members, the unemployment rate at the country level fell for three members: in Italy, Spain, and Greece. The unemployment rate rose month-to-month in Austria, Finland, and Luxembourg. This compares to May when the unemployment rate fell in five of the reporting members and in April when the unemployment rate fell in six of these members.
Which way does the trend blow? While there has been some enthusiasm recently about some improved economic data, particularly in the United States, where data have shown some firmness and inflation has been tempered, the unemployment rates in the European Monetary Union are showing signs of running out of gas when it comes to moving to lower levels. The question at hand is: are things getting better or is the improving trend ending?
Looking at the changes over various periods over 12 months, 6 months and 3 months, we find that unemployment rates have fallen on balance over three months in five EMU members; over 6 months they've declined for seven members; and over 12 months they've declined for six members. By comparison, unemployment rates have risen over 12 months for five members; they rose over 6 months for only two members; and they've risen over 3 months for five members. There's a little bit more back and forth in the changes in unemployment rates compared to the preponderance of declines that used to dominate the trends.
No real back-tracking yet However, what we're seeing for the most part is simply a slowdown in the decline of the unemployment rate while unemployment rates themselves remain at extremely low historic levels. The unemployment rate for the Monetary Union itself has been lower only 0.7% of the time. Across Monetary Union members, only two members have unemployment rates that are above their median and that includes Luxembourg and Austria. On the other hand, Germany has an unemployment rate that has been lower only 5.8% of the time. France has an employment rate that has been lower only 2.6% of the time. Ireland has an unemployment rate that's been lower only 0.3% of the time and the Netherlands has an unemployment rate that has been lower only 9% of the time. There are far more countries with extremely low rates of unemployment than there are countries with unemployment rates above their historic medians. Still, only Ireland is at an historic low rate; Germany and France are above their lows by 0.1 percentage points. But, on average, the unemployment rate low is 1.5 percentage points lower across these 12 members.
Comparing the European Monetary Union to the United States, the United Kingdom, and Japan (using the claimant rate for the U.K. to bring the data up to date), we find more backtracking in this group recently than we do in the Monetary Union itself. The U.S. shows the unemployment rate higher on balance over 3 and 6 months. The U.K. shows the claimant rate higher over 3, 6 and 12 months. Japan’s unemployment rate is higher over 12 months and 6 months but then lower over 3 months. The U.S. has an unemployment rate that has been lower only 5.8% of the time, Japan’s rate has been lower 15.5% of the time, while in the U.K. unemployment rate has been lower 60.2% of the time (based on the claimant rate).
Global| Aug 01 2023Manufacturing PMIs Waffle and Remain Weak in July
Manufacturing PMIs from S&P waffled in July. Among the 18 reporters, 44% of them improved on the month, a slightly greater proportion than the 38.9% than improved in June and the 33.3% that improved in May. But in all those cases, there is more deterioration than there is improvement although the median reading rose in July. It rose, but it didn’t smell like one.
The median reading improved on the month, rising by 1.4 points to a level of 49.2. The reading from manufacturing overall is below 50, confirming that output continues to decline globally. Looking at the averages from 12-months to 6-months to 3-months. The median over 12 months is 48.7, falling back to 48.4 over 6 months and to 48.2 over 3 months. The data show a very gradual erosion and on the other hand also some relative stability at readings that are just slightly deteriorating in a zone below stable output. Yeah… the results are somewhat uncomfortable, but they're not terrible. The trends don't clearly suggest that deterioration is eminent or that rebound is in the making. It's just a steady drum beat of underperformance and slightly depressing news.
Month-to-month 9 of 18 reporting countries and economic units in the table saw their manufacturing sectors worsen. Over 3 months twelve of these reporting areas worsened; 8 worsened over 6 months compared to 12 months; and over 12 months, 14 are worsening compared to 12-months ago. There's not a clear signal here from the progression. Clearly, the year-on-year comparisons are the weakest and there's some let-up in that weakness over 6 months, but then on the transition to 3-months there's a deteriorating tilt once again and we are left unsure where momentum is headed.
The rank, or queue percentile, standings have a median value in the 25th percentile, in the lower quartile of their range of values for the various countries and reporting units as of July. Only four countries have readings in their 80th percentiles: those are Indonesia, ostensibly Russia, India, and Mexico. The very weakest rankings are in the most developed areas: a 3.8 percentile standing in the EMU, a 3.8 percentile standing in Germany, a 3.8 percentile standing the U.K., and a 5.8 percentile standing in France. The proximity of extreme weakness to the war zone is notable - except for Russia, of course.
China| Jul 31 2023China Manufacturing Sector Contracts But Improves Slightly
China's manufacturing sector improved slightly on the month with its PMI reading moving up to 49.3 from 49.0 in June. The reading is still below 50 so it continues to indicate contraction, but there is less contraction than there was a month ago. China has four straight months of manufacturing readings below the level of 50.
The manufacturing PMI reports 11 components, four of which decline month-to-month in July; they are output, employment, new export orders, and imports. Among the 11 component readings, eight of them have individual sector diffusion readings below 50, indicating contraction for that metric.
In June, 8 of 11 components weakened month-to-month with only two component readings having PMI standings above their 50th percentile; the two that scored the highest were delivery speeds and the output, although they were both very mildly above 50 at readings of 50.3 for output and 50.4 for delivery times.
May saw weakening across 10 of 11 components with only delivery times strengthening month-to-month; only delivery times have a reading above its 50th percentile.
Manufacturing readings in China continue to display levels of activity that hover about the unchanged level. March saw a bit of a rebound in the index, but it subsequently lost that bloom and has been below 50 for most of the recent months. In fact, in the 16 most recent months, the Chinese manufacturing PMI is below the diffusion reading of 50 in eleven of those months. During that stretch, two of its ‘above 50’ readings are at 50.1 and another is at 50.2. Clearly the last year and a half has been a weak year for Chinese manufacturing.
Average data show 3-month readings below the breakeven 50-diffusion mark in 9 of 11 areas. Over 6 months, 7 readings are below the diffusion value of 50, while over 12 months, all the sector readings except the one for output average below 50. These statistics confirm a great deal of subpar performance in Chinese manufacturing recently.
The queue percentile standings for the Chinese data from July 2023 back to 2005 show the PMI headline and all the sectors with standings below their 50th percentile except for only two sectors: delivery times and stocks of major inputs. For the rest, the fact that readings are below the 50th percentile mark means that they are below their medians for the period. Delivery times have a 67.7 percentile standing which put them barely into the top one-third of its historic readings, while stocks of major inputs have a 58.5 percentile standing, above its historic median.
The manufacturing PMI itself stands in its lower 10-percentile, which is extremely weak; new orders run low, in their 12th-percentile, output is in its lower 10-percentile, and new export orders in their lower 7th percentile. Imports are in their lower 12th percentile and so on. The percentile standings are extremely low and reinforced the signal that not only are diffusion values showing significant weakness across components as well as contraction, but the level of activity indicated by these sector readings compared to what they show historically are extremely weak readings.
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