Economy in Brief: February 2023

The table chronicles manufacturing PMI data as presented by the S&P survey across a wide range of global economies. Notably this month there is a divergence between what the S&P PMI data say in the U.S. for manufacturing and what the ISM survey says. In the table, I present the results from the U.S. S&P survey while in the chart I plot the U.S. ISM manufacturing data that show the U.S. continuing to erode while the U.K. and the European Monetary Union show monthly improvements.

In the S&P survey, there is an improvement in the euro area as the manufacturing PMI moves up to 48.8 in January from 47.8 in December and the two largest monetary union economies, Germany and France, also show improvement in their manufacturing sectors. The U.S. manufacturing report from S&P shows an improvement to 46.8 from 46.2. This contrasts with the U.S. manufacturing ISM reading that falls from 48.4 in December to 47.4 in January.

Turning back to the monthly S&P data, among the 18 reporting units in the table, all but five show month-to-month improvement in January; worsening are Russia and India as well as Malaysia and Taiwan. The median S&P manufacturing gauge for January is 48.9, up from 48.0 a month ago; however, the averages for PMI data from 12-months to six-months to three-months show mixed trends.

The diffusion data for these time-sequence cohorts shows that over 12-months there are only five countries that report improved results compared to the previous 12-months. Over six-months there are four countries that show improved conditions from 12-months ago. Over three-months there are eight countries that show improvements from 6-months ago. The number of reporting units that show improvements month-to-month Vs deterioration is at a standoff in January. The median reading is still weakening on trend. The question is whether the January improvement owes to data variability or whether it's beginning of something completely new.

While the odds-on call is still for recession in the U.S. and in Europe, there's a growing chorus of economists arguing that a recession can be and will be avoided and so data that begin to show some economic resilience are going to have some play and get some purchase in markets. And this will occur until the transition of these economies toward recession either continues and until recession develops or unless resilience builds on itself and shows that recession avoidance is a real event.

For the moment, there's not a great deal to go on. PMI data do show some resilience month-to-month; however, as of January there are still 11 reporters in the table with PMI values below 50 indicating the manufacturing activity is still contracting whether it is improved month to month.

Manufacturing PMI values ranked on data back to January 2020 show only five observations above their medians for this period, Russia, India, China, Indonesia, and Turkey. The rest have standings below their 50th percentile for their queue rankings with an average percentile standing at the 25.7 percentile mark which is quite weak (just outside the lower quartile). The U.S. alone has its S&P manufacturing standing as the weakest in the table at its 8th percentile; the euro area has a standing at its 24th percentile; the U.K. has a standing at its 13th percentile; Japan has a standing at its 29th percentile and so on.

Manufacturing sectors are weak compared to where they have been (since 2019) and this has not been a particularly robust period for economic growth. And data since January 2020, when COVID struck, show that every reporting unit in the table has a PMI value lower than it was before COVID except for Russia and Mexico. Taiwan is lower by 15.9 points; U.S. manufacturing slowed by 12.3 points. No other country is lower by double digits although Germany is lower by 9.8 points.