Economy in Brief: May 2023

Month-to-month manufacturing PMI changes were mixed in April with increases in eight of 18 observations (two unchanged by assumption because of missing data). Except for the U.S., the largest economies generally worsened in the month (Euro Area, Germany, France, the U.K, and China).

The progression to better (or less bad) conditions is clearer looking at three-month changes. The three-month averages of the manufacturing PMIs show weakening compared to 6-months in only 5 of 18 categories. Over six months things shift again, and PMIs are better in only 6 of 18 categories. Over 12 months, this trend continues as only 5 of 18 are better.

These metrics underscore that the current progression to ‘better’ (...or not as bad) is relatively recent and that the concept of ‘better’ applies just to comparisons over very recent months since over 6 months and 12-month conditions broadly are worsening.

That is hardly surprising… When we turn to engage with the column on rank or queue standings of the level of diffusion readings, weakness is the overpowering result. The median standing is a 24-percentile standing; that places the median for the group in the bottom 25 percentile of all observations since January 2019 – that is an extremely weak median.

One version of this month’s data is that there is some sort of revival going on… another version is that… “Well, yes, things are better, but not by much.” I am much more in the second camp than in the first camp. Still, it is notable that central banks have been hiking rates and inflation remains far too strong in most countries/regions and yet there has been some improvement in economic activity. Even if it is a minor effect, it is contrary to expectations and for that reason still notable.

The median manufacturing PMI value for each of the last three months as well as each of the three sequential periods referred to above, the PMI medians all are below 50 – indicating that contraction is most common.

Japan has in progress a sharp rise in confidence over recent months. The rise in confidence is particularly sharp since February of this year. Most components were last higher in February 2022, over a year ago. For employment, willingness to buy durable goods, and for ‘the value of assets’ the last stronger observation is slightly more distant.

Despite a rise in confidence that is particularly notable over the past two months, there are still low standings for the level of confidence and for its components in April. The ‘all households’ confidence rank is in its 16.6 percentile; for two-person households, confidence is in its 19th percentile.

No components of confidence stand above their respective medians on data back to 2002. The strongest category is employment, with a 46-percentile standing. The weakest is the 7.2 percentile standing for ‘willingness to buy durable goods.’

As for momentum, the 3-month and 6-month changes in the headline as well as the component survey values are larger than the increase over 12 months for all categories except employment where the 12-month gain exceeds the gains over both 3-months and 6-months. That tells us that employment has been steadily improving while other components had seen most of their gains relatively recently. Apart from that, the 3-month change across components as well as for the headline, accounts for most of the gain in the various reading ranging from 81% to 94% of the six-month gain. In one case, for income growth, the three-month change is larger than the six-month change.