Economy in Brief

The S&P Global flash PMIs are continuing to show some resilience in the face of what have been some significant challenges. Commodity prices and inflation have been rising and high and in response central banks have been raising rates for about one year. The Russia-Ukraine war has been in progress for a year casting a pall of uncertainty across geopolitics as well as over the economic outlook. A more recent development is banking problems that have emerged, particularly in the United States and Europe and specifically in Switzerland. And, of course, it's too soon to see the impact of any banking sector problems in these data.

What we do see is stronger PMI readings across the board, except for the U.K. We see stronger readings for the services sector everywhere, once again except the U.K. There are weakening manufacturing responses for the European Monetary Union overall, for Germany, and for the U.K. in March. However, there is a widening count of sector or overall readings of weakness in progress and a surprising period of strengthening that came well into the rate hike cycle. In January, only three of the 18 readings registered month-to-month weakening. In February, there are four indications of month-to-month weakening. In March, there are five indications of month-to-month weakening. However, with 18 sectors represented in the table, the number recording weakness has only risen to five in March from three in January. In terms of changes in PMI data, it doesn't appear that tightening monetary policies are having all that much impact, certainly not a rapid impact on these economies.

If we look at the strengthening versus weakening responses over 12-month, 6-month and 3-month periods, we find overwhelming evidence of weakening over 12 months and over 6 months, not so much over 3 months. Over 3 months, Germany and the European Monetary Union show strengthening in all their measures along with the U.K. France and Japan show weakening over 3 months compared to 6 months in two sectors with manufacturing strengthening in France and services strengthening in Japan. The U.S. is the exception to all these rules with 3-month, 6-month and 12-month weakness in all the sectors on all the horizons. Let me point out again that the 3-month, 6-month and 12-month averages are applied only to hard data and so they are applied to data beginning in February not the data from March.

If we set aside our obsession with the changes and look instead up the levels of the PMI data where the nomenclature focuses on values above 50 showing expansion and below 50 showing contraction, we find that services sectors in all six of these reporting units in March and in February show expansion. In contrast, manufacturing shows contraction - that is levels below 50 for the diffusion indexes- in March and February in all six cases. Regardless of whether manufacturing did a little bit better or worse on the month than the month before, manufacturing broadly is declining while services broadly are showing ongoing expansion.

The queue percentile standing is presented in the table. These readings measure the standings of the March PMI values across all values reported since January 2019. They show percentile readings below the 50% mark in manufacturing for all reporting entities in the table. The 50% mark in ranking represents the median for the period over which data are ranked. So what we are seeing is below median values for manufacturing everywhere with rankings clustered around the 20% mark although with France below the 10% level and the U.S. at the 13.7% level. Services rank above their 50th percentile everywhere with an extremely strong reading at the 98th percentile in Japan and a strong 82nd percentile in the European Monetary Union. Those compare to a relatively weak standing for services at about the 53% level in the U.S. and a 55th percentile standing in the U.K.

The table also presents diffusion point changes month-to-month and over 3 months as well as the change versus January 2020 before COVID struck. These data show that all manufacturing readings are weaker than they were in January 2020 while most service sector readings are stronger; however, the U.K. and Germany are exceptions with small service scepter decrements to their January 2020 levels in March. The U.S. has a service sector gain of only 0.3 points on that timeline. However, over 3 months, we see service sector readings mostly better, stronger by 2.3 to 8.4 points over that span. Japan shows the smallest composite increase at 2.3 points while the U.S. shows the largest composite increase over 3 months of 8.4 points.

Consumer confidence in Denmark in March improved slightly, moving up to -23.1 from -25.1 in February after logging a -26.1 in January. These improvements are not strong, but they are movements toward ‘better’ rather than toward ‘worse.’ The absolute reading is extremely weak with the ranking of 2.7% on data since 1995. That means that since 1995 readings have been this weak or weaker only 2.7% of the time.

The past year… The data assessing conditions over the last 12 months are generally quite weak; the financial situation for the last 12 months has a 0.6 percentile standing. The general economy reading for the last 12 months has a 3.3 percentile standing. The assessment of consumer prices over the last 12 months, of course, has a high 97-percentile standing telling us that inflation had been higher historically only about 3% of the time. That's not surprising and it's not good news. That summary sets the stage for the responses for this month.

Looking ahead The look-ahead responses from March show the financial situation for the next 12 months slightly stronger at a net 0.4 reading, up from -0.3 in February, but still with only a 3.6 percentile standing. The outlook for the general economy improved to -0.7 in March from a -6.4 reading in February, logged at a 38.8 percentile standing much better than the other standings noted to date; however, it is substantially below the 50% break even mark. Consumer prices over the next 12 months have a -8.5 assessment for March below the -8 assessment for February; the standing for this metric is the 27th percentile which is certainly a lot weaker than the 97th percentile standing for the previous twelve months. There is some expectation that inflation is going to be coming down; it is hard to tell from this whether that sort of decline is sufficient or not. The unemployment trend expected for the next 12 months has a lower net 18.6 reading in March, down from 28.4 in February (which had a small uptick compared to January). The standing still has an 87-percentile mark which is relatively high.

The environment Assessments of the environment in March change very little from February. All responses have rankings below historic midpoints (below 50%). The favorability of the time to purchase improved slightly to -39.6 in March from -41.8 in February; the favorability the time to purchase over the next 12 months improved to -15.5 from -17.9. The favorability of the time to save ticked ever so slightly higher to 64.4 from 64.3; the March favorability of the time to save over the next 12 months eroded to 22 from 23.8 logging a lower 10-percentile standing. The general financial situation of households is unchanged at 19.8, a 2.4 percentile standing. The environment is weak.