Economy in Brief

OECD leading indicators show mostly weakness but mixed performance among the top regions. The level of economic performance grades as consistently weak or very weak while various measures of momentum are mixed.

Recent momentum Month-to-month in May the OECD 7, the European Big 4 and the U.S. show essentially unchanged normalized leading indicators while Japan ticks up by 0.1% as does the index for the Asian Major 5 (China, India, Indonesia, Japan, and South Korea). Over three months, the OECD-7 index falls by 0.1% and the U.S. index falls by 0.6%. But rising by 0.6% is the European Big 4 and the OECD Japan; the Asian Major-5 index is rising by 0.9%. Over six months, the OECD-7 index has been flat. The U.S. index is down by 0.5%, Japan's index is up by 0.2% while the Asian Major-5 index is up by 0.7% and Europe's Big-4 index is up by 0.9%. The broader 12-month change indexes show declines for all the metrics except for Japan; it is flat over 12 months.

Normalized index standings are weak These normalized indexes all have standings that are below their midpoints (below the 50-percentile mark). Japan comes the closest to being near its neutral mark with a 48.3% standing. After that, the Major 5 in Asia have a 28.4 percentile standing, but then the U.S. reading has a 14.7 percentile standing, the OECD 7 has a 12-percentile standing and Europe's Big 4 have an 11.6 percentile standing. All the major groups show weakness; Japan, viewed in isolation, is closer to a neutral reading and it is the only comparison like that.

Six-month changes The OECD expresses the preference to look at its indicators over six months. In the second panel of the table, we see changes in the 6-month averages that show declines in May for all these groups except for the Europe Big-4 measure that is up by 0.1% and for China that is up by 0.6%. A month ago, all the readings were negative except for China with a 0.4% reading. Looking at point-to-point 6-month changes on intervals of 6-months, we see many more negative readings although the recent 6-months show an increase in Europe’s Big 4 (of 0.9%) and a gain in Japan. There are 6-month declines in the U.S. and in China and with the OECD-7 measure flat. But 6-months ago the 6-month point-to-point changes show all negative readings and for 12-months ago the six-month changes are all negative except for Japan (at 0.1). Mixed 6-month results are a new phenomenon.

The bottom panel of the table looks at the amplitude adjusted readings in level format. In terms of levels, only Japan has a reading above 100 in May, indicating that it is above its adjusted trend. China has a reading in the table above 100 and its colored red because the underlying data are below 100 but round up to 100. What you see in this panel of the chart is a persistence of indexes languishing below 100 that signal performance is below trend values. On the far right, we have queue standings for the levels and again all of them are below the 50th percentile mark. Japan has the strongest reading at a 48th percentile standing along with Germany; China logs a 44.5 percentile standing. All the rest are more substantially below the 50% mark indicating weakness and below trend growth.

German orders in April fell by 0.4% in April as foreign orders led the way lower on a 1.8% month-to-month decline. Domestic orders rebounded from a steep decline in March to rise by 1.6% month-to-month. Both foreign and domestic orders had fallen sharply in March. Foreign orders fell by 13.1% and domestic orders fell by 7.7% even though February had produced strong gains in both categories. Over three months both foreign and domestic orders now are showing steep declines.

German real orders The sequential growth in orders for Germany shows deterioration although not a progressive deterioration across the board. Orders fall by 10% over 12 months. The annual rate picks up to a -14.6% annual rate over six months and then further accelerates to -26.3% over three months. This deterioration is led by foreign orders with a 12-month percent change at -10.7%. The annual rate drop over six months is nearly twice that at a -20% pace and the 3-month decline nearly twice that at a -37.3% pace. Domestic orders follow suit with weakness but are not sequentially worsening. Domestic orders fall by 8.8% over 12 months, then reduce their pace of slippage with a -6.2% annual rate fall over six months, then reaccelerate to a -7% pace over three months, a pace of decline that is a slightly faster drop than over three months but still less than the 12-month pace. On balance, the picture of the German economy is quite clear: weakening over all horizons is in progress and the weakening is worsening overall led by a significant worsening of foreign orders.

Real sales Sector sales in manufacturing show progressive deterioration from a gain of 3.1% over 12 months to a decline at a 3.7% annual rate over six months and a decline at a faster, 7.7% annual rate over three months. Consumer goods contribute to this secular deterioration and deceleration with a 4.4% decline over 12 months, a -5.3% pace over six months and a -6.3% pace of decline over three months. Capital goods follow suit as well. However, they post a strong 13.9% gain over 12 months that quickly dissipates to a -0.8% annual pace of decline over six months and a -13.7% pace over three months. Intermediate goods break the pattern; they show a -4.5% pace of decline in sales over 12 months and a worsening -6.1% pace of decline over six months, but then intermediate goods sales increase by 0.8% at an annual rate over three months. Even though the picture is clear that sales are weakening and for the most part they are deteriorating, the deterioration for consumer goods is caused by nondurable goods whereas consumer durable goods sales are showing acceleration, but not enough to impact and reverse the secular decline in the headline pace of sales for consumer goods overall.

Industrial Europe The EU industrial confidence measures for Germany, France, Italy, and Spain show declines for all four countries in April as well as in March. All four confidence measures worsen in April compared to March. The average EU confidence indicators show worsening in confidence in the 6-month average compared to the 12-month average for all four countries; however, for 3-months compared to 6-months, there is less weakness registered for Spain, for Italy, and for France. Only Germany shows period-to-period deterioration; however, over three months Germany alone shows a net positive reading while the other three countries show negative readings (but negative readings that are smaller over three months than they were over six months on average).

Q2 now in progress April brings us the first reading for the second quarter. To start the second quarter, conditions show negative growth in Germany for total orders, for domestic and foreign orders, and for all the sector sales categories except for sales of consumer durables. The queue percentile standings on the EU industrial measures for Germany, France, Italy, and Spain show only France with a standing that's below its median - that is below a standing of 50%. However, Italy is marginally above 50% with a 53.6 percentile standing.

The Standard and Poor’s Global composite PMI data for May show some degree of resilience. Among the 22 countries and regions featured in the table, the average composite PMI rating rises to 53.5 in May from 51.5 in April. The median reading rises to 54.0 from 53.8. There are only two jurisdictions with readings below 50 indicating contraction; this compares to three in April. For both months, the readings on the number of contractions are quite low. However, the number showing slowing rises to 11 in May compared to 5 in April.

U.S. trends diverge- The fork in the road... To avoid confusion, let me point out that I have presented both U.S. measures in the exhibits. In the table (below), for comparability, I have the U.S. composite as presented by S&P so it's completely comparable with everything else in the table. However, in the chart at the top, I present the U.S. nonmanufacturing or services PMI from the ISM, the survey I prefer. The ISM is showing much more weakness in the U.S. than the S&P reading on the services sector. The chart reveals significant weakening in the U.S. compared to other members whose surveys are based on S&P data. The S&P survey shows some strengthening in the U.S. for the composite, not just less weakness.

S&P readings show resilience overall... The data in the table also showed that the average reading is increasing sequentially: from 12 months to 6 months to 3 months from 51.6 over 12 months on average to 52 over 6 months on average to 53.3 over 3 months on average. The median region also increases from 51.2 over 12 months to 51.8 over 6 months to 53.5 over 3 months. S&P data are consistent with the notion that there's been some firming in the global indexes and a back-off in activity in the manufacturing sector.

Still, there is little evidence of composites showing contraction. The number of jurisdictions with readings below 50 over 12 months is five, the same as for 6 months; that number diminishes to 3 over 3 months. The number readings that are slowing over 12 months compared to 12-months ago is 20; the number slowing over 6 months compared to 12 months is 7; the number slowing over 3 months compared to 6 months is 3. In terms of either slowing or outright contraction, both approaches show that there is less weakness in train according to the S&P readings applied to sequential data. Recall that the monthly data do show that there's a more significant broad slowing in May compared to April, but that's on the month-to-month comparison alone.

Percentile standings have become more midrange Percentile standings based on the queue method of assessment show only three jurisdictions with readings below their medians since January 2019. Those three are Sweden which is exceptionally weak with the 2% standing, Egypt with a 36.7 percentile standing, and France with a 40.8 percentile standing. All the rest have standings that are above their historic medians which means they have queue percentile standings above the level of 50. India in May logs its highest composite PMI reading since January 2019; Japan logs a 98-percetile standing on the same period.

Today’s estimates of the UK services PMI suggest that business activity continued to expand during May, thanks to a strong rise in output and incoming new orders.

The key details were as follows:

• The S&P Global / CIPS UK Services PMI Business Activity Index was 55.2 in May, a modest decline from 55.9 in April and upwardly revised from the earlier flash estimate of 55.1.

• New export orders expanded as a result of an increase in tourist numbers, alongside solid demand for business services from US and Europe. Job creation also continued as firms recruited more staff to meet business needs, while wage pressures also persisted.

• Input price inflation rose to a three-month high due to elevated wage levels and ongoing supplier price hikes for items such as food.

• The composite PMI-which weighs the manufacturing and services sectors combined- fell to 54.0 in May, down from 54.9 in April.