Economy in Brief

The S&P Global PMI indexes weakened across the board in June; the exception to the weakening was only in Japan where services have improved month-to-month and where the composite also improved month-to-month. The U.K., France, Germany, the U.S., and the European Monetary Union each saw weaker services, manufacturing, and composite readings. This is a sharp worsening from May when the composite index weakened in the U.S., and in the U.K. with the U.K. seeing weakness in manufacturing and services. The U.S. composite index weakened on the month due to service sector slowing. Germany also was weaker in May on a weaker manufacturing sector that dragged the composite lower. The EMU registered a weaker manufacturing sector and its composite index rose in May along with that sector in France and Japan.

Over three months composites increased in the EMU, Germany, France, and the U.K., with Japan and the U.S. showing weaker composites as well as weakness in both manufacturing and services sectors. Over three months the U.K. saw a weaker manufacturing sector as did Germany and the EMU alongside an improvement and their overall composite index. However over six months all countries in all sectors show all sector weakness -except for Japan that shows contrary three sector improvement. All countries show strength over 12 months in all sectors with no exceptions.

The queue percentile standings show an average composite for this group of countries that is below 50, manufacturing gauges that are below 50, by a substantial margin and a service sector average that is below a 50-percentile standing as well. All sectors are below their respective historic medians (below 50) on this timeline. However, including the U.S. in this run of data makes things look worse. After leading the way higher post Covid, the U.S. is now leading the way lower with S&P PMI flash values at standings below their respective 30th percentiles. In sharp contrast, Japan is sporting queue percentile ratings in the 90th percentile for services and for the composite- but a manufacturing reading only at its 66th percentile.

The German service sector and the U.S. service sector as well as the U.S. composite are below their respective levels compared to where they stood in January 2020 before Covid struck.

Month-to-month, of 18 sector and composite readings, only three rose. The composite fell month-to-month on average by 1.8 points led by a 2.5-point drop in manufacturing and a 1.7-point drop in services.

U.K. inflation rose by 0.5% in May after rising by 1.9% in April and 1.0% in March. Inflation acceleration was far less common in May with inflation accelerating in only 18% of the categories. In April inflation had accelerated in only 36% of the categories. That compares to March when inflation had accelerated in over half the categories with the diffusion value 54.5%. Despite seemingly tamer performance of inflation, inflation continues to rise and to accelerate from 12-months to six-months to three-months. Core inflation also broke lower in May at 0.3%; in April it was up by 0.5% but in March it had risen by 0.8%.

If we look at sequential trends, the U.K. headline CPIH rose 7.9% over 12 months, and at a 10.2% pace over six months, and logged a 14.4% pace over three months. The CPIH, excluding energy, food, alcoholic beverages & tobacco - the core measure, rose 5.2% over 12 months, at a 5.9% annual rate over six months, and at a 6.4% annual rate over three months. Inflation in the U.K. is accelerating over these sequential periods.

U.K. inflation is clearly excessive, but the Bank of England has prevaricated in taking firmer steps perhaps partly because of this less broad inflation in April and on the lower gain for inflation in May. But the Bank of England is still well behind the inflation curve, like the U.S. Federal Reserve and like the European Central Bank. Central banks need to get out ahead of the inflation problem and not chase it from behind, and become complacent when there's some sign that inflation might be slowing ‘organically.’ Central banks have come to dwell on the idea that they don't want to create a recession and that possibly they can create a soft landing. However, they are all so far behind the curve in terms of inflation fighting; it's hard to see how they can run hard enough to catch up without doing damage to the economic landscape.