Economy in Brief

The average unweighted composite PMI readings from S&P Global for April show another monthly increase as the average ticks up to 51.5 from 50.5. The median moved up to 53.8 in April from 52.8 in March.

Small, if against the grain, changes The movement in the various series are small; however, what is striking is that they are movements against the grain at a time that inflation is high and central banks are still raising interest rates – and have been doing so for some time. Just yesterday, the Federal Reserve hiked interest rates and today the ECB put in another rate hike on top of its rate profile. In both cases, inflation is still well above their targets and only now is the U.S. short-term interest rate starting to be on an even-keel or slightly higher than the major inflation indexes used to gauge inflation in the U.S.

Resilience or bad analytics? The perception that economies have been resilient in the face of rate hiking is a perception that comes largely from the fact that rate hikes have gone on for such a long time. In the case of the U.S., it's a record increase of interest rates in this rate hike cycle. While, on the face of it, that sounds impressive, the fact of the matter is simply that the U.S. had allowed itself to get so far behind the inflation rate when it rose, that it has taken a record run of rate increases to get the federal funds rate marginally above the trailing 12-month rate of inflation… on a few measures. And the ECB is not there yet. So, people who like to look at rate increases and gnash their teeth over how the market is performing, and growth has endured, have been somewhere between surprised and disturbed at economic resilience. But, if you're the kind of person who looks at the levels of real interest rates relative to inflation, then you have understood what's been going on and why there's nothing particularly remarkable about this. Even so, it's surprising that as central banks, the Fed in particular, have taken away stimulus - even though rates haven't really gotten to a restrictive mark - growth has held up as well as it has.

A unique paradigm It is difficult to compare these times to any other times because the world's economies are so much on the same cycle because of COVID having struck. COVID struck all countries that about the same time and from that point countries have had slightly different experiences with their economic recoveries, but all of them are recovering from the same sort of shock not so much from the disease but from the policies that were pursued to try to contain the disease.

So… how good is growth? To assess the global PMI data, please shift over to the right-hand column; it shows very moderate queue percentile standings. The average standing is at the 63rd percentile with the median at a 69th percentile standing. Percentile standings place the current observation for each economic unit in the queue of data from January 2019 to date. The queue percentile expresses the position of the current observation in that queue of data. On this metric, the median for the period occurs at a ranking of 50%. So, these rankings this month are ‘firm’ rankings of 63% in standing, 13 percentage points above the median which means that 13% of the observations lie between the median and the current value. It also means that the highest value lies some 37% above the current value. In contrast, the range percentiles position the current observation between the highest and lowest values of the period expressing the current reading as a percentile of the high-low range.

Momentum Momentum is also telling, and we see a big difference between what's happening in the last few months and the broader trends. In the current month of April, there are only five out of twenty-five jurisdictions that show slowing; this compares to nine in March and five in February. In April, there are only four jurisdictions with PMI values below 50 (where PMI diffusion values say activity is contracting); there were only six in March and only six in February. Looking at averages over three months, we get similar sorts of statistics with five jurisdictions below 50 and five jurisdictions that are slowing. But over six months, eight of the twenty-five jurisdictions are below 50 and fourteen of twenty-five are slowing. Over 12 months compared to 12-months ago, there are seventeen jurisdictions that are slowing and six with PMI values below 50.

The unemployment rate in the European Monetary Union had reached a new low at 6.5% in March, down from 6.6% in January and February. On data back to the year 2000, Germany and France both have new low levels of unemployment. All the members of the monetary union listed in the table with the exception of Luxembourg report unemployment rates that are below their historic medians. Luxembourg is above its median by a small amount with a rank percentile standing at its 52.9 percentile; it's median occurs at its 50th percentile.

Among the twelve countries that report in the table, only two show about employment rates that are not below the 30th percentile in ranking; Luxembourg and Spain whose standing is at its 31.7 percentile. Portugal is close at the 29.4 percentile, Austria is at the 25.6 percentile with Greece at a 24.8 percentile standing.

There also are rank percentile standings below their 16th percentile – seven of them. Unemployment rates continue to broadly fall in the European Monetary Union despite high inflation and despite ongoing rate hikes by the European Central Bank. There are other central banks in Europe hiking rates as well as a substantial array of hikes is being executed in the United States – hikes from the U.S. continued at the Fed’s meeting today.

Rate declines in EMU Among the 12 reporting EMU countries, all but four have unemployment rate declines over three months; two of them, the Netherlands and Luxembourg, have no change in their unemployment rates over three-months. Over 6 months all but three countries have declines in their unemployment rates and over 12 months all but five countries have declines in their unemployment rates among the twelve European Monetary Union countries listed in the table.

In comparison, the United States has a decline in the unemployment rate in March. On the same timeline, it has an unemployment rate that is in the bottom 2% of all unemployment rates since 2000. The U.S. employment rate is unchanged over three months and six months, but it's lower by one-tenth of one percentage point over 12 months.

The unemployment rate profile that we see in Europe is surprising in part because inflation rates in Europe remain so high - although the rate hikes in the United States have been more extreme than in Europe and the U.S. unemployment rate has remained low, unemployment rates in Europe surprise in the wake of ECB policy as well. In the European Monetary Union, the unemployment rate has fallen by 3-tenths of a percentage point over 12 months, more than it's fallen in the U.S.