Economy in Brief: 2023

Momentum: In September, 10 of 18 manufacturing PMI observations across countries and areas listed in the table deteriorated. Over three months, half of the observations deteriorated compared to their values over six months. Over six months, 8 of 18 diffusion metrics-slightly less than half- deteriorated compared to their value over 12 months. However, over 12 months, only four observations improved leaving 14 in the deteriorating mode. Conditions are still considerably mixed between improvement and deterioration, but they are clearly tilted toward more deterioration than toward more improvement, indicating that globally manufacturing continues to be under pressure.

Sequential comparisons of expansions vs. contraction: As to actual expansion or contraction on the PMI gauge, 14 of 18 show contraction in September while 12 show contraction in August and 14 show contraction in July. The preponderant result shows contraction, meaning PMI values are below 50. Looking at broader comparisons, over three months 13 of 18 reporters have values showing contraction, over six months 12 of 18 show contraction and over 12 months 11 of 18 are indicating contraction.

Assessment favors WEAKNESS: While the statistics about improvement versus deterioration are somewhat more mixed, it's clear that for most countries whether they are improving or deteriorating slightly they are nonetheless still in the contraction zone as far as the manufacturing sector is concerned. The global manufacturing economy remains under pressure.

The strongest: Only Mexico, Russia, Indonesia, and India register manufacturing PMI values above 50 over all three horizons of three months, six months, and 12 months. In the case of Russia, I would say that statistic is suspect, but it's the one that's reported and having the alternative it's the one that I use.

The weakest: Germany is the only country with readings over three months, six months, and 12 months that all are below a diffusion value of 45.

Broader, five-year rankings- The queue percentile standings for this group of countries are extremely weak; the median reading, in fact, is 26.9%. The median sits barely above the lower quartile which is an extremely weak position. Russia has the strongest percentile standing at 98.1% but probably only if you're willing to suspend disbelief. After that, the highest reading is India's 82.7%, Indonesia's 73.1%, and Mexico's 69.2% China has a 59.6 percentile standing in September. However, among the largest industrialized countries, the readings are the weakest. The euro area has a standing in its 7.7 percentile, which includes Germany at a 7.7 percentile standing, and France at a 5.8 percentile standing. The U.S. has a 25-percentile standing. The U.K. has a 5.8 percentile standing - the same as Canada. Large economies have extremely weak readings for the most part. China is the exception as the only large economy with a standing above its 50th percentile.

Relativity... And while I like the standings data because it accounts for structural historic differences, it's also true that relativity in some cases is not the bets metric. This high standing for China, for example, refers to a manufacturing PMI value of 50.2 which places it barely in expanding territory. Since we have been in a prolonged period of impacted growth, when rankings over the last five years we are comparing everything to a period in which most of the readings have been extremely low except for a few relatively strong observations that occurred when countries temporarily broke out strongly from the Covid lockdowns.

China watchers saw reason for some cautious optimism lately, as economic data for August showed signs of growth stabilization. Retail sales and industrial production expanded at a brisker pace, while trade registered reduced rates of decline. Growth in fixed asset investment, however, continued to slow. Additionally, China’s latest PMI readings for September were a mixed bag, as official readings indicated some pick up in non-manufacturing activity, while the Caixin gauge signaled slower growth in both manufacturing and services. Looking further back, China’s GDP growth in Q2 fell short of expectations, as a much-hyped post-pandemic rebound disappointed. Instead, the Q2 growth reading was supported by low base effects from a year ago, during which China enforced strict pandemic-related lockdowns. Regardless, China’s growth for the year has been predominantly consumption-led, while trade acted as a mild drag (chart 1).