Economy in Brief: January 2023

China's manufacturing and nonmanufacturing PMIs have improved in January; each of them rising significantly. The manufacturing PMI is up to 50.1 from 47.0 in December; the nonmanufacturing PMI has jumped to 54.4 from 41.6. Both were on a string of declines; January signals expansion for the first time in four months. In the case of each one of these readings, it's just an increase for one month in a row and, while it is only one month both the diffusion indexes - on top of improving - (for the first time since September in manufacturing and for the first time since June for nonmanufacturing) are above 50, indicating growth. In the case of manufacturing, it's barely any growth because the index is only at 50.1.

Optimism grows… Still, there is growing optimism in China because it has ended its zero COVID policies and that appears to be having an almost instantaneous impact on growth. These improvements are expected to continue. However, China is coming off a period of weakness as the 12-month, 6-month, and 3-month manufacturing and nonmanufacturing PMI averages show slippages over that time sequence.

Ranked on data since January 2019 the manufacturing and nonmanufacturing gauges are above their medians for the period, both have rankings above 50. Manufacturing has a ranking-reading barely above 50 at 51.0. For nonmanufacturing it's a much more substantial position above 50 at a 75.5 percentile standing. But both sectors are responding quite quickly which isn't surprising given the nature of the zero COVID policy and this tendency for that policy to hammer at nonmanufacturing and services sectors much harder than at the manufacturing sectors as demonstrated by the large gain in nonmanufacturing in January… as the policy was abandoned.

EMU- Long slow slog of recovery? EU Commission indexes for January 2023 show continuing rebound for the European Monetary Union as it continues to climb from its October low. The January index for the Monetary Union rises to 99.9 in January from 97.1 in December. There are month-to-month improvements in all the components except for construction. The reading for construction falls to 1 in January from 4 in December. However, the industrial index rises to 1 from -1, the consumer confidence index reduces its negative reading to -20.9 from -22.1, retailing does the same, rising to -1 from -3 in December. The all-important services sector advances to a reading of 11 in January from 8 in December. These EMU indexes are net diffusion indexes that are the result of subtracting negative responses from positive responses to create the net diffusion reading. The headline sentiment reading is a different animal; it's an index.