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Economy in Brief

Manufacturing PMIs Weaken in January
by Robert Brusca  February 1, 2022

Manufacturing PMIs have peaked and have been sliding lower for some months. The peaking and slippage are a slightly different horizon for each country, but all of them are now on downslopes.

In January, the deteriorations exceeded the 'better' responses by a factor of 8-to-5. The change from three months vs. six months shows a nearly equal improvement vs. deteriorating trend. The change from 12 months to six months shows deterioration dominating improvements by a factor of more than 2 to one. But over 12 months compared to a year ago, improvement is the order of the day with 11 improvements logged vs. only 2 deteriorations… Longer term, the beat goes on.

Covid rears its ugly head
Once again, the Omicron variant seems to be behind the worsening trend in manufacturing as the less virulent but much more transmissible variant has swamped hospitals with infected people despite its lesser virulence. In this case, transmissibility has trumped virulence to create a potent viral attack on the populations globally. While vaccination helps to mitigate the impact of infection, it does not stop it. As a result, Omicron has been very widespread and even quite dangerous. It is a lesson about how one should view danger.

Vaccines to the rescue...oops not...
I suppose one thing we should at some point begin to wonder about is the economy's recuperative capacity after a bout with yet another variant of Covid-19. When Covid first struck, draconian measures were taken by health authorities who were more scared than knowledgeable about what to do. Over time the mRNA quasi-vaccines were developed and for a while they became the path to stronger growth. Eventually health officials discovered that the inoculations had a short 'effective life,' and 'vaccine-boosters' were thought to be needed after six or eight months. It is now understood that the inoculation's immune system stimulants begin to drop sharply after just four months. That is probably not a 'New Reality' as much as it is scientists discovering the real reality. Discovery of this reality makes the quasi-vaccines much less of the backbone of a response system and critics of the CDC complaint that the CDC, which tends to lead the Covid fight globally, did not devote enough resources to other potential treatments. If you put all your eggs in the vaccine basket, that basket better carry the day. (This not an opinion-it is a fact. See Scott Gottlieb at the 39-minute mark of Face the Nation 1/16/22 . - here Gottlieb, who is on the Board of Pfizer notes the failure of the vaccines to prevent transmission. He also blames the CDC – a significant statement from a high-profile industry expert and a former FDA Commissioner.)

Damped recovery prospects?
In the past after a bout of virus, there were government support programs and some of those are still in circulation in various places. But government assistance and income supports are now much less common. After this round of Covid, manufacturing and services are going to have to rise back based on whatever organic demand has been built up. There is reason to believe that such build-ups in demand occur after a period of disruption. But the snap back may not have the same 'snap' as in previous episodes of infection followed by recovery.

The state of play for manufacturing
The queue or rank standings find only China and Brazil below their historic medians, but these two are below by a huge margin with standings below their 5th percentile in each case. The median occurs at a percentile queue standing of 50%. These are readings far from where they belong.

There is more firmness this month than strength. Japan has a 98-percentile queue standing. Russia Vietnam and the EMU have queue standings in their 80th percentile range. But Germany, France and the U.K. -the top-ranking three European economies- have standings in their 70th percentile queue standing. India and Taiwan are in their respective 60th queue percentiles. Turkey and the U.S. tally standings in their 50th percentile decile. Over 50% of the responses are at the 70th percentile standing mark or above. But still 30% are just in the first decile above their median (50

The responses this month show some mixed statistics, but clearly growth remains the operative descriptor. Yes! The growth has been more moderate than strong, and this is due to this survey being conducted in the middle of another Covid episode. Looking at the cumulative gains since January 2020 when covid struck is also illuminating. The EMU area and Germany have gained double-digit diffusion points on that horizon. The next strongest is the U.K. at +7.3 points and Japan at +6.6 points. Then rising by 3 to 4.4 points are France, Russia, the U.S., Taiwan, and Vietnam. Countries with manufacturing readings below their January 2020 levels are Turkey, India, China, and Brazil – sinking like a BRIC?

January Manufacturing PMIs

Evaluation and prospects
There is still a long way to go. But progress continues. In the EMU, the unemployment rate in December continued to drift lower, falling to 7.0% from November's 7.1%. There were unemployment rate declines in eight of the 12- earliest members of the EMU that reported new data today. And from January 2020, there are lower rates of unemployment in eight of twelve reporters. The PMI data are sensitive and will wiggle a bit more month-to-month, the result of volatility or because of their link to minor sub-cycles in manufacturing. But unemployment data are much more locked onto more durable trends. Not surprisingly, we continue to see progress in motion on growth despite monthly setbacks in PMI data and other risks. The next challenge for growth is going to be, not just the unaided recovery's ability to reassert growth after the Covid attack subsides, but also the ability of growth to settle in and maintain itself as central banks turn attention away from stimulus to the task of reining in inflation that has grown out of control. There are going to be headwinds…That challenge lies ahead.

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