Economy in Brief

The S&P global composite PMIs took a turn for the worse in June. Among a sample of 20 countries and regions, only seven improved month-to-month. That means nearly twice as many deteriorated as improved. However, among the twenty, there was only one observation with the diffusion value below 50 indicating that there was actual economic contraction in June - that occurred in Ghana.

Growth rules but slowing encroaches That set of generalizations is true over all the timelines in the table where we look at the most recent three months and we look at a period of three months, one of six months and another of 12- months, in each case, compared to earlier periods to assess the changes and the levels of the various composite PMIs. Looking at these various slices of time, there is no period in which more than three composite PMIs are below 50 at the same time. So, 17 out of 20 of these jurisdictions have diffusion values above 50, demonstrating that growth prevails in every one of these timelines. However, of the six comparisons (three individual months and three periods), there are three comparisons of period changes that show that more than half or half of the jurisdictions are slowing; two other periods show a significant amount of slowing while only one period - that period is the comparison of 12-months to 12-months ago - in which only a few of the jurisdictions are weaker than they were in the previous period.

The clear overview for the composite PMIs is that growth remains the order of the day although there is some significant slowing. There's slowing in 13 of 20 areas in June, 11 slow in May and seven slow in April. The tendency to slowing has been expanding in the last three months. On the other hand, looking at the net changes over three months we find that 9 jurisdictions have slowed, slightly less than half, but over six months 12 have slowed.

The table also gives us averages and medians for the PMI measures in the table over the last three months; the average has fluctuated between 53 and 55 while the median has been between 52.7 and 55.8. For this group of 20 countries, these are moderate or normal composite PMIs. Over three months, six months and 12 months, the averages fluctuate between 53.7 and 54.4 with the median fluctuating between 53.8 and 54.9, looking at the same sort of range.

High-low percentile standings The average percentile standing in June for the various countries is a 79.9 percentile standing while the median is at 81.5. These percentile standings place the current PMI value for each country or region in a percentile positioning in its high-to-low range of values since January 2018. So that on this period we see that when placed within the range of recent values current performance is relatively closer to the top of the range than to the bottom. However, the second ranking statistic, and the one I prefer, is the queue standing.

Queue percentile standings The queue standing places the current observation expressed as a percentile standing among all observations from January 2018 to date – not just positioning it between the highest and lowest. It is an ordinal measure which is what the headline ‘queue’ stands for; it tells you whether the current value is at the head of the queue or at the end of the queue or near the middle. For both the average and the median we see very middle of the road queue percentile standings. The average is at its 50.2 percentile while the median is at its 52.8 percentile. These queue standings (or ranking statistics) position the current crop of PMI readings near the middle of the distribution they had occupied during this period. That assessment abstracts from the particular level reading is this month. It is the ranking that places the current observation as a position and its queue of historic data and focuses our attention on its relative position rather than on the absolute value of diffusion itself. That gives the reading much more context.

When we put these various findings together, what we see is that we have a group of twenty countries whose current performance is what it has been on average since early-2018. We see that recently there has been some tendency for the composite PMIs to register slower growth. And not surprisingly giving these middle sorts of ranking assessments, there are very few members of this group that show contracting growth. In fact, over the various time segments, we look at here there have been very few that have shown contraction. Still, there are seven jurisdictions with queue standings below – and in some cases well below - their respective historic medians. The U.S. and Germany are among countries with PMI queue standings in the lower one-quarter of their queue of observations since January 2018 - that is not reassuring.

Among the 18 countries in the table that report manufacturing PMI data in June, only four show month-to-month improvements. These countries include China, Russia, Malaysia, and Mexico. In June, developed economies seemed to be hit much harder than developing economies.

Over three months, there are six countries of the 18 that improve compared to their PMI readings of six months ago; these include Mexico, Russia, India, Brazil, Malaysia, and Vietnam. None of the G7 countries are on that list either.

Over six months compared to 12 months, six countries improve including Mexico, Japan, Indonesia, Malaysia, Vietnam, and South Korea. Among G7 countries, only Japan appears on that list.

Recent data have been showing broad improvement of manufacturing areas when compared to 12 months ago. However, as of June the breadth of this improvement is being challenged. Eight countries or regions improve over 12 months compared to 12 months ago. Those include the euro area, France the U.S., Canada, Mexico, Japan, India, and Malaysia. Based on these longer-term comparisons, developed economies are faring much better among the largest G7 countries in the table; only Germany and the U.K. fail to show improvement over 12 months.

There are also eight countries in the table that show rank percentile standings also known as queue percentile standings below their 50% mark. The 50-percentile mark designates the median observation over the sample. Our data period extends back to January 2018. Among those countries and regions that are below their 50% mark are the euro area, Germany, France, the U.S., the U.K., Indonesia, Taiwan, and Turkey. Once again you see a proliferation of G7 countries on this list.

There are still several countries that haven't improved their manufacturing position compared to where it was before COVID hit. These include India, Taiwan, and Turkey. The countries whose manufacturing sectors have improved the most since COVID struck are Germany, Canada, the euro area and Japan.

The data shows some widespread weakness in manufacturing particularly among the developed economies that we think of as the demand centers for global growth. China has a relatively stronger queue-ranking compared the G7 countries and it is also an important source of demand as well as supply. But China has been weak for some time and its outright manufacturing diffusion reading continues to be weak even though it ranks well on this timeline. To underscore this, China shows that since COVID struck its manufacturing reading is only 0.7 points higher, making it one of the weaker economies recovering since COVID struck.

Table 1

China's economy has been under pressure. Its approach for attacking COVID known as zero COVID has implemented rolling lockdowns across the country that have interfered with manufacturing and economic activity as COVID itself has proved to be extremely hard to eradicate. The rest of the world has decided that it will live with COVID since COVID turns out to be not as lethal as once thought nor for the most part as debilitating. But China's different approach means that a portion of the world economy is at risk to COVID and that supply chain interruptions from the disease are still possible as well as a setback to global aggregate demand as China's own demand wanes under the strain of lockdowns.

China, however, now shows signs of being able to emerge from some of its difficulties. It hasn't changed its zero COVID policy at least not formally, but there appears to be some ability of the economy to find some footing. China has implemented some targeted lockdowns that have locked down smaller more precise areas- a less ham-handed approach.

In June, the manufacturing PMI index has moved up to 50.2 from May's 49.6. The manufacturing sector is now showing expansion (its strongest since February). In fact, the sector's average reading over 12 months is below 50 so it has been indicating a depressed or barley growing manufacturing sector for quite some time. Nonmanufacturing has jumped very sharply in June. It has reached a value of 54.7 on its diffusion index in June, up from 47.8 in May. Looking at the chart, you can see how sharp this jump appears. The nonmanufacturing index was at a reading of 41.9 just two months ago so nonmanufacturing is making great strides. And this is the part of the economy that tends to be the most harmed by COVID lockdowns. Manufacturers have found ways to run their businesses and even to keep people in the factories living and working in the factories while they are under their lockdown orders. Some factories can continue to operate under lockdown orders. But service sector businesses are businesses that are out in the open, out in the economy, out in that area that gets locked down. When a lockdown occurs, a worker can't get to that business and consumers can't get there either. Service sector businesses simply get locked down too.

The one month rebound in nonmanufacturing is the second largest one month rebound in that index in the last 15 years. It's a very significant jump. The two-month jump, which is also the second largest on record, is the largest increase after COVID struck China.

The manufacturing and nonmanufacturing sectors are showing significant improvements. Whether they continue to do this will depend a lot on what happens with COVID and attitudes toward it in the days ahead.