Economy in Brief: April 2022

Industrial production rose by 0.2% in February after declining for two months in January and in December 2021. Manufacturing output has declined in only one of the last three months falling by 0.9% in January flanked by minor increases of 0.2% or less in December 2021 and February 2022.

Data for three key industries in Sweden show mixed trends. For food beverages and tobacco, there is a steady deceleration as growth drops from 5.4% over 12 months to a pace of 3.9% annualized over six months to -6.8% over three months. However, for textiles, the pattern is irregular with the declines over three and 12 months versus a solid increase over six months. For motor vehicles, there's a 16.4% decline over 12 months, a 7.2% annual rate of decline over six months followed by a 7.1% decline over three months. That marks a technical acceleration even though all the growth rates are negative.

Sector weakness trends are mostly mixed: intermediate goods show a mixed pattern but with 12-month growth and three-month growth nearly the same at -3% annualized. Investment goods also show a mixed trend but with the 12-month declining pace at -1.8% and the three-month annualized decline at -1.7%. Nondurable consumer goods output shows an ongoing deceleration from a 14.7% annual rate increase over 12 months to a 6% pace over six months to a declining pace at -13.2% over three months. Consumer trends have pulled back steadily and sharply.

Quarter-to-date trends for Sweden show at a -3.9% annual rate of decline; that's for two of three months hard data in the first quarter. Manufacturing output is falling at a 4% pace in the quarter-to-date. By industry, there are declines in the quarter-to-date of 7% for food, beverages & tobacco and of 9.3% for textiles although for motor vehicles there is an increase at 11.6% annual rate. Sectors show declines throughout with intermediate goods falling at a 1.8% annual rate, investment goods at a 4.2% annual rate, and nondurable consumer goods at a 4.5% annual rate.

Comparing output to January 2020, before the virus had struck most places, overall industrial production excluding construction has risen by 2.2% on that timeline; manufacturing is up by 2.8%. On that same timeline, output in all three industries in the table is lower and two of the sectors are lower: intermediate goods and investment goods. The overall result for manufacturing has been pulled up by nondurable consumer goods where output has advanced by 18%.

Inflation data are also contained in this table as a point of reference. Inflation continues to accelerate from 4.4% over 12 months to 5.9% over six months to 6.3% over three months. The core rate also accelerates from 2.8% to 4.2% to 5.4% on the same timeline. Sweden is caught up in the global inflation problem.

The total, or composite PMI from Markit in March, generally weakened. In Europe, for the EMU and its largest economies, there was month-to-month weakness across the board. But in the U.S., the Markit composite index moved up to 57.7 from 55.9. For 19 key countries, the composite PMI slowed in 13 of them with four of them posting PMI values below 50, indicating economic contraction. This contrasts to February, when only three slowed, and only three posted PMI values below 50. However, the unweighted average for the group of countries has moved from 52 in January to 54.6 in February back down to 53.6 in March. The median similarly shows a move from 51 in January to 55.3 in February backing off the 54.6 in March.

These unweighted trends show a weakness between March and February but still show March levels of activity above those in January. The slowing is broad but not severe.

Sequential data looking at averages over 12 months six months and three months show the average PMI reading falling from 54.6 over 12 months to 54.0 over six months to 53.4 over three months. For the median, the average for the group falls from 55.1 over 12 months to 53.7 over six months staying at 53.7 over three-months.

The evaluation of the level of activity that corresponds to the average and median shows that these countries are in an average percentile standing of their range between 81% and 83%. The 81% to 83% percentile marks a very high position for the high-low range of outcomes for the various reporting countries. However, the queue standing data produce different, weaker, results. The queue data are obtained by ranking each country's current value among its set of values from January 2018 to date expressing the current standing as a percentile standing. So the queue percentile standings are ordinal standings. Viewed in this way, the average queue standing for the group is at its 58.6 percentile while the median is at its 66.7% percentile. That's a reasonably large gap between the average and the median. But for both, these are considerably weaker readings than the high-low percentile standings. What this suggests is that while most of these countries have a percentile standing that are relatively high in their high-low range, when ranked among all observations, countries are much closer to their average and median values.

Still, the data over three months, six months and 12 months, show that there are only between five and two countries over these periods averaging PMI values below 50 indicating economic contraction. For the bulk of countries, growth remains the rule of order. However, there is a clear tendency toward weakening. The 12-month average shows no country weaker than its previous 12-month average. But the six-month average compared to the 12-month average shows weakening in 13 of 19 reporters and over three months there's a weakening in 16 of 19 reporters. While the statistics show a broad weakening, we can see from the data on averages and medians that the weakness is not really very pronounced; it may be broad and consistent, but it's not pronounced.

Wrap up Among the salient trends for March, we find a sharp weakening in Russia's PMI as it falls to 37.7 from 50.8 in the early wake of sanctions. Only Ghana shows its PMI weakening in each of the last three months. Sweden is the only country where the PMI weakens for just two months in a row (March and February). Over three months only Egypt has three readings each below 50 although Russia and Japan come close on that score. Only Brazil shows steady acceleration, improving averages from 12-months to six-months to three-months. Brazil in the only country showing its highest reading since January 2018 (100% percentile standing).

There are sanctions at work that, eventually, may slow growth globally more broadly than just Russia. If China backs Russia, things could get much dicier, especially if the same sort of sanctions are implemented. There is still the virus, and it has continued to hit China hard, as China continues down the road to zero-Covid. And global supply chain issues are still unsolved while central banks grapple with high inflation and take steps to reign it in. The environment still possesses some significant risks. Meanwhile, PMI levels are only moderately firm on average based on queue standing averages.

In March, of the 18 manufacturing PMI entries in the table, 12 worsened. Only one-third of the countries improved month-to-month. This is the same split as over three months when 12 also declined compared to six months ago. Asia weakened broadly with Japan and Indonesia as exceptions.

Some PMIs indicate sector contraction Five countries report manufacturing PMI values below 50, indicating that manufacturing is contracting in those places. These entries include Mexico, China, Russia, Malaysia, and Turkey. China is experiencing a wave of Covid reinfections and remain dedicated to its zero-Covid policy.

China and Russia Flares of infection in China led to swift and broad targeted shutdowns that greatly impact the economy there. With the Russia-Ukraine war having started in late-February and economic sanctions imposed on Russia because of its aggression, the Russian manufacturing PMI slipped to 48.6 in February from 51.8 in January. It has in March fallen again to 44.1, indicating sector contraction as sanctions begin to bite- and this is only the beginning of that process.

Malaysia, Turkey, and Mexico Malaysia has experienced a spike in Covid infections in March as they peaked early in the month – part of the reason for its weakness. Turkey saw its PMI weaken on the month and fall to indicate contraction; it is less a case of virus issues as its outbreak peaked in early-February. Inflation in Turkey, however, has surged to over 61%. Mexico is an odd case with its Covid infections peaking early in the year and dropping since. Mexican inflation, however, has been on the rise. Its PMI is below 50 indicates contraction and it ranks below its historic median as well; nonetheless, it stands in the top 20% of its historic range of values. We can conclude that Mexico's weakness may not be as severe as its standing implies because of a very tight distribution of values. With such extraordinary weakness China and Russia have the larges gap between their range and standing positions, but among other entries Mexico and Vietnam are the next largest gaps. The median gap is 13 percentage points; for Mexico, the gap is 34 percentage points.

Over six months, ten of the 18 manufacturing PMI entries show weakening. But over 12 months, only China and Brazil are worse on balance. The average PMI levels for the entire group of emerging economies in the current month, as well as for three-months and for six-months, are all just a few ticks above 50, the dividing line in the PMI lexicon between expansion of the sector and contraction. Manufacturing has been on the razor's edge of expansion for the past year.

Among entries only Canada logs a manufacturing reading at its high on this nearly five-year period. The average reading for all entries is at about the 75% market between its sample period high reading and low reading. The far right-hand column provides queue percentile standings. They show only Canada with a 90-percentile standing or higher. But five countries stand below their historic medians (below a rank standing of 50%) among them Mexico, Vietnam, and Turkey. However, the weakest ranking countries are China and Russia; China's ranking is in its 1.7 percentile and Russia's is in its 3.4 percentile.

The average gain in PMI levels for January 2020- since Covid struck is a gain of 2.7 points, a meagre rise for period of over two years. However, China, Russia, India, and Turkey are net lower in that timeline. Germany has the largest gain posting rise of 11.5 points, followed by Canada at 8.3 points, the U.S. at 7 points, Japan at 5.3 points, and the U.K. at 5.2 points.