Economy in Brief

Conditions this month remain mixed and weak. It’s a relatively robust overview and one we have been reporting for some time.

The Process It is always difficult to evaluate and to summarize global data because, of course, different countries and regions are always doing different things. An aggregation of data leads to some weighting process which will cause the evaluation of world events to turn on how the largest countries, populations, or economies, are doing. My evaluation of this data set will turn on looking at the medians or the averages for the reporting country PMIs as well as looking at diffusion data which tell us how broadly the various respondent countries are performing. These data are supplemented by percentile ranking or standing data that will tell us where the current month’s reading stands relative to observations since January 2021. Together we will get a more complete picture of how countries – and the global economy- generally are faring. This approach will generate a set of data to help understand individual countries in a global context rather than a context that will simply focus most on the largest countries.

Having made those points, looking at the sequential data at the top of the table, we can see that the group of Western economies including the United States, the European Monetary Union, and its four largest economies, generally are better than they were 12-months ago and worse over 6 months than they are generally over 12 months and also generally worse over 3 months than they were over six months so large economies are generally dragging these results down over recent monthly data. November showed broad weakness, December showed a broad rebound among the large economies compared to November, and now in January there is backtracking again with mixed results.

The summary data at the bottom of the table showed that the overall median gain for the 25-country sample is generally eroding but not very rapidly from 51.7 in November, to 51.1 in December, to 50.9 in January. This is a stepwise erosion but it's also a relatively modest erosion. The median also steps down from the 12-months to 6-months to 3-months (averages), once again, falling at a snail's pace with the 12-month median at 51.5 and the 3-month median at 51.1. Conditions really are much more static than weakening but these are still relatively weak responses. For example, the far-right hand column is the queue standing which positions the January data in a queue of data since January 2021. On that basis, the January median has a ranking that averages at its 42.9 percentile; the average standing for the group has a ranking in the 44.9 percentile- both of these figures, of course, are below 50% which means they're below their median for that period of time. The average standing for the U.S., the U.K. and the European Monetary Union is 38.8%, slightly weaker than for the group as a whole. The BRIC countries that at one point were pushing a great deal of strength now have a 25.2 percentile standing -with Russia excluded- but those raw diffusion readings are still higher than the unweighted readings for the U.S., U.K., and the European Monetary Union. This simply underscores the fact that the BRIC countries have been doing relatively well.

The persisting good news in this report in January is that there are only 5 jurisdictions with composite PMI readings below 50, which means only five countries or areas in which conditions were actually contracting. That compares to six in December and seven in November so that on a monthly basis there's been a slight move to having fewer countries experiencing economic contraction. However, it's not a particularly broad movement since the 12-month, 6-month, and 3-month averages are fairly stable, counting five to six countries in the declining category over broad period. However, looking at the ranking data more broadly the queue percentile standing shows 16 countries below a ranking of 50 for the queue percentiles. For rankings data ‘50’ does not enshrine the difference between rising and falling for output; rather it designates the median for the period, so the bulk of countries are below their medians although very few countries are contracting.

At the bottom of the table, we look to see the proportion of countries that are slowing. Over January and December slightly more than half are slowing although in November fewer than half were slowing only 44%. The 12-month, 6-month, and 3-month averages that compared 12-months to 12-months ago six-months to the 12-month results and 3-months to the six-month result show that slowdown is broadening with slowing evident in 43.5% of countries over 12 months, rising to 69.6% over 6 months and holding at 60.9% over 3 months.

Manufacturing PMIs in January show continued weakness; the median for the 18 countries and the table weakens slightly in January compared to December and remains weaker than the November median as well. Diffusion calculations, however, show that there are more reporters and the table with manufacturing PMIs improving month-to-month in January with 61% of them improving compared to only 28% of them in December.

Progressive statistics that look at the percentage improving in three-months compared to six-months as six-months compared to 12-months and 12-months compared to a year-ago show diffusion improving from 39% to 44% to 67%-sequentially. For the current 3-month versus 6-month comparison, diffusion shows improvement in 67% of categories. Diffusion has been steadily rising, as the sequential comparison demonstrate, although that has not been accompanied by a steady increase in the median reading for the group – indicating how complicated it is to develop overarching metrics for the group. The median reading for 12 months is at 50; over six months that slips to 49.6 and over three months there's a slight recovery to 49.8. Diffusion indexes improve in three months compared to six months, but they're still lower than they have been over 12 months on average and the reading for diffusion over three months shows a tendency for manufacturing to contract.

The far-right hand column presents queue rankings that order the January estimates on data back to January 2021. On that basis, there are only six of the 18 observations that lie above a rank at the 50th percentile which means there are only 6 (or 1/3) above their medians for this period. Countries with observations above the median are Russia, India, Canada, Mexico, Indonesia, and Taiwan. The average of the median ranks is 40.8 percentile, a number clearly below breakeven output at 50 and indicating shrinking manufacturing activity in general.

The rankings by individual countries still show a great deal of variation and weakness. Japan and China, for example, have queue standings for the manufacturing observations in January that are in their 14th and 16th percentile rankings - these are extremely weak. Vietnam is in its 28th percentile, Turkey is in its 24th percentile, but even France has a reading only in its 22nd percentile. The euro area has a ranking at its 40th percentile, the same as Germany with the same ranking as the United States which is also in its 40th percentile. Manufacturing simply continues to be weak in January.

In January, eight of eighteen observations log diffusion values above 50 (indicating manufacturing expansion); this compares to seven in December and eight in November. Sequentially the three-month average of the PMI readings shows seven over 50-for three-months and six-months with nine averaging above 50 for the full 12-months. There has been slippage in recent months compared to the 12-month performance. And there may be more trouble ahead.