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Economy in Brief

PMIs Show Their Weak Side in August
by Robert Brusca  September 1, 2021

In August, the manufacturing PMIs from Markit were unambiguously weaker for the bulk of the 17 countries and one region in the table. Only four showed month-to-month improvement, they were Canada, Indonesia, Malaysia, and Turkey. The red-letter country-names in the table stub mark countries where the manufacturing PMIs are below 50 in August; there are six of those (one-third of the total): Mexico, China, Russia, Indonesia, Malaysia, and Vietnam. The average change in the median observation month-to-month is -1.5 diffusion points in August.

While the worsening tendency is pretty much everywhere, Asia has a lock on the proportion of manufacturing PMIs pointing to contraction in August (China, Indonesia, Malaysia, and Vietnam).

The virus/beyond the virus
The virus continues to spread and countries with a lesser proportion of their population vaccinated are getting hit harder. But there is a silver lining there. Countries that have not have much vaccination are going to see more infection now but are going to acquire more natural immunity for later. The consequence of this can be seen in comparing Sweden (a country that did not execute lockdowns or have as widespread vaccinations) vs. Israel (one of the most vaccinated countries in the world). As the variant sweeps through in another infectious wave, Sweden is being less affected while Israel is being more affected. These are countries of roughly similar population size. In Israel, new studies are showing more ‘break-through’ infections; these are infections of people who are fully vaccinated. Thus, we can expect from the Asian countries, as they suffer more infections now, that they will acquire a better more powerful natural immunity as Sweden did that will protect them better from subsequent waves and variants of the virus in the future. While this approach has been thrust upon them, it is also true that it is something for which there will be a longer-term benefit. China is a country with a high level of vaccination but is using a vaccine that gave less protection in comparison with other vaccines. Acquiring natural immunity may be a painful silver lining. But since Covid does not kill the healthy with a great propensity if these countries shelter their most vulnerable, there may be a payoff for this unfortunate turn of events without an outsized cost.

Manufacturing PMI trends
The recent weakness shows the three-month average of the PMI values are better than the six-month values in only four countries (an odd group: the U.S., Mexico, Brazil, and Turkey). Over six months compared to 12-months, the median of the averages rose in only six countries. In 12-months compared to a year ago, there is improvement all around. So there is still long-term and medium-term improvement in train. If countries can get on top of their nascent Covid waves, they may be able to arrest the current spate of deteriorating values. However, the better/worse trade-off is not simply a numbers game of how many are better and how many are worse. Comparing the median values of the period-averages, we find that over three months, despite the skew to weakness, the median value was only worse than the six-month value by 0.3 diffusion points. And we find that over six months compared to 12-months, while there is much more improvement than weakness, the median value deteriorated by 0.8 diffusion points. These calculations pale beside the 12-month-to-year-ago comparisons which find a six-point improvement in the median value.

PMI assessments
The queue standing rankings and high-low range positioning find about the same assessments of the August PMIs. There is an 80th percentile median standing in the high-low range compared to a 77.8 percentile standing using the queue ranking system. However, values of the PMIs are much more clustered at higher values in the high-low range compared to the queue readings. There is only one high-low positioning below 50 which is the midpoint of the range for each country. However, for the queue standings, there are seven countries with standings below the midpoint of their ordinal queue. Countries like China, Russia, Malaysia, and Indonesia are extremely low-ranking in their respective queues. Only Vietnam is weak on both scales.

By region
European and North American countries have queue standings in their 80th to 90th percentile queue standings. Taiwan joins them as does Turkey; and Brazil as South Korea comes close.

Since Covid struck
Lastly, we evaluate performance by looking to see how countries have fared compared to their circumstances just before Covid struck in January 2020. Seven of the 18 countries are still below their January 2020 PMI levels. Only Vietnam is lower by 10 points or more. The European and North American countries average a gain of 10.6 points. The differences are quite stark.

The Baltic Dry Goods Index
The Baltic Dry Goods Index tells us that, despite these uneven manufacturing responses in the Markit survey, the volume of goods being shipped internationally continues to grow. This index is a daily index and is up-to-date through August 30. There has been time for the setbacks in Asia to have taken a toll. And so far, they have not in a clear way. We know that China had an important container port partly closed for some time in August because of an outbreak of Covid. But there is no systematic damage from the virus apparent in the Baltic Dry Goods Index.

The news of the virous remains somewhat mixed. There are some reports of younger healthier people getting the virus and even being hospitalized. But there is no compelling evidence yet that the virus has become more lethal. The Delta variant is more transmissible, but up to this point, it has not shown itself to be more lethal. Now we are also getting data from Israel and other places of fully vaccinated people getting Covid; there is a controversy about booster shots. In the U.S., health officials support them, while WHO does not because it will divert vaccine from countries that have not had an initial round of vaccination yet.

However, what is clear here is that vaccination is no silver bullet. It is a stop gap. Nor it is clear that if you get a booster-shot you will not eventually need another booster…and so on. However, there are other medicines and other vaccines pending approval that could be considered and that might prove superior to what we are now using. The question is whether a good, permanent, vaccine will turn up or not. The mRNA vaccines now appear to be temporary fixes not final solutions. The question is also if health authorities will spread their net now to embrace some of the medicines that on-the-scene doctors have recommended but that the health authorities has so far stone-walled, and that various internet sites or social media providers have banned for discussion.

Commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
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