Economy in Brief: February 2023

The composite PMI readings from S&P Global in January largely show improvements although clearly amid mixed performance. The trends are largely still weakening but January provides some pickup. The JP Morgan global PMI for example improved to 49.8 in January from 48.2 in December. The HSBC emerging market index has a PMI value of 51.9 in January compared to 50.1 in December. The developed markets index has a diffusion rate of 48.4 in January up from 47.1 in December. Despite these month-to-month increases, the global PMI index from JP Morgan shows deterioration from 12-months to six-months to three-months based on the PMI averages. The HSBC emerging market index deteriorates as well although with some mixed messaging. Emerging markets have a PMI average for 12-months at 50.2 that improves to 50.7 over six months and then falls back to 50.3 over three months. The developed markets index sequentially deteriorates from 50.7 to 47.9 to 47.6.

Queue standings are weak with few exceptions The standings of these various aggregated indexes are also weak. The JP Morgan global PMI has a 20% queue standing on data back to January 2019; on that same timeline the HSBC emerging market index has a 51-percentile standing, barely above its median, while developed markets have a puny 14.3 percentile standing, clearly well below the history median (which occurs in all cases at a queue standing below 50).

A breadth of monthly progress The unweighted average and overall median indexes across all the countries and the EMU show increases in January after posting increases in December as well. The number of jurisdictions with readings below 50 declines somewhat sharply in January to 11 from 17 in December compared to 17 in November. This is a count of 25 jurisdictions that includes all the elements in the table from the U.S. market composite down to Nigeria excluding the three market groups at the top of the table. Also, January finds five regions slowing compared to 10 in December 13 in November. Slowing refers to lower PMI values month-to-month. So, there has been some progress in the composites that's driven not just by large countries but by unweighted numbers.

Still…sequential weakness However, the 3-month, 6-month, and 12-month averages show ongoing weakness on that sequence for the averages and medians for this 25-country grouping. In addition, the number of jurisdictions with values below 50 increases from 7 over 12 months to 14 over 6 months to 16 over 3 months. But the number of jurisdictions showing slowing declines slightly from 18 over 12 months to 17 over 6 months and to 14 over 3 months.

PMI levels are uniformly weak with few exceptions There is little disagreement among the queue standings. The queue standings are weak, up and down the line. Among under 25 entries in the table, only 8 have queue standings above the 50th percentile, meaning that they are above their historic medians since January 2019. The strongest of them is Zambia with the 91.8 percentile standing (but…on a PMI value of only 50.6!). The next strongest is India at an 81.6 percentile standing, Hong Kong and Japan have standings in their 70th percentiles, Saudi Arabia, Kenya, and Italy have standings in their 60th percentiles. But the unweighted overall average standing in the table is at the 40.6 percentile mark with the median at the 36.7 percentile. These are weak readings.

Swiss confidence improved in the first quarter of 2023 rising to -30.2 from -46.5 in Q4 2022. Confidence had previously deteriorated in the third and fourth quarters. In terms of four quarter changes, confidence is still in a broad deteriorating cycle; it's fallen by 21 points over 12 quarters, by 16 points over eight quarters and by 26 points over four quarters.

The outlook for confidence improved sharply in the first quarter. The reading of -16.3 is up sharply from the -57.2 logged at the end of 2022. But the confidence outlook is lower by 11 points over twelve quarters, slightly higher, rising by 0.2 points over eight quarters, and is still net lower over four quarters, falling by 37.4 points. The outlook has been on a bit of a roller coaster in the wake of COVID and the uneven recovery and inflation it spawned.

Past confidence improved in Q1 2023 at -49, compared to -59.9 at the end of 2022. Past confidence is still slipping, having worsened by 26.2 points over four quarters after improving by 45.1 points over eight quarters, and worsening by 55.1 points over 12 quarters. The 12-quarter comparison takes us back to the Q1 2020 level when COVID first struck.

The price outlook for Switzerland has fallen to 90.3 from 104.5 as of the first quarter of 2023. Over four quarters the price outlook is now net lower down by 3.6 points; over eight quarters, however, it's higher by some 46 points, and over twelve quarters it's higher by 35 points. Obviously, inflation is still stirring. Looking at past prices, the first quarter assessment is slightly higher than the assessment for the fourth quarter at 132.7 compared to 130.7 The four-quarter change is still higher by 49.9 points; however, that's smaller than the nearly 115-point gain over eight quarters and then there is the 85-point gain over 12 quarters. These readings flag, of course, past significant rises in inflation and while past increases are still the rule the recent past has shown some improvement. And, of course, the outlook shows small declines in the price outlook – there is a progression at work.

Job security perceptions increased smartly in the first quarter of 2023 as the reading rose to plus 1.6 from -25.1 in the fourth quarter. Over 12 quarters, assessments improved by 45.9 points, over eight quarters they improved by 124 points, over four quarters they are better by 60.8 points. Much of the improvement is very recent; COVID plays a big part and those past developments and in causing people to become more worried about their job security. Now, even with the war in Ukraine in progress, and having been in progress for a year, job security in Switzerland has improved smartly.

Personal finance metrics haven't changed that much in recent quarters; the outlook for financial conditions shows a very similar reading for Q1 2023 to what it logged for Q2 2022 with some deterioration in between. Past financial conditions over the last four quarters have also been relatively stable. However, all the changes in financial conditions over four, eight, and 12 quarters show that there has been deterioration to some degree afoot- there is only one quarter in a row of improvement in financial conditions and their outlook.

The spending environment has not changed too much over the last three quarters; however, the changes over four quarters, eight quarters, and twelve quarters show deterioration although a deterioration that has been slowing.

Queue standing assessments The final column of the table evaluates the Q1 2023 readings relative to their historic performance back to 1980. On that timeline, confidence measures are extremely low, inflation measures are elevated, job security emerges as rather solid at an 86.7 percentile standing. Job security has been better less than 14% of the time. However, personal finances under current circumstances show a bottom 16% standing and the outlook has a bottom 2.3% standing. In addition, the likelihood of making a special purchase - despite solid job security - is at a very low 1.7 percentile standing. The present assessment for consumer confidence has only a 6.4 percentile standing although the outlook is better with a nearly 35-percentile standing; that's still a lower one-third-of-queue reading.

At today’s meeting of the Federal Open Market Committee, the targeted Federal Funds Rate was raised by 25 basis points to a range of 4.50% - 4.75%. The action followed one 50 basis point increase and four consecutive 75 basis point increases. The rate was set to the highest level since October 2007.

The Fed’s statement following the meeting contained the following indications.

“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”

“Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated. The Committee is highly attentive to inflation risks.”

“The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously released plans.”

Today’s action was endorsed by each member of the FOMC.

The Fed issued a statement concerning the Longer-term Goals of Monetary Policy and it can be found here.