Composite PMIs Pickup Despite All the Headwinds

The S&P Global composite PMIs moved higher in March as they improved significantly in some cases as well as broadly. For the 25 entries in the table, only 6 slowed month-to-month. The average composite PMI reading in March moved up to 50.4 from 49.7 in February ending a string of net declines that the series had indicated. The median moved up to 52.8 from February’s 51.6 continuing to show that growth overall was improving. For a group of developed economies including the United States, the United Kingdom, and the European Monetary Union, the March composite index average moved to 52.9 from February’s 51.6 also migrating up from a value of 49.1 in January. Who would have thought that a year after a relatively vigorous tightening by the Fed, joined by other central banks, would result in economic acceleration?

Month-to-month patterns Looking at the three most recent months, there's now scant evidence of declines in economic activity among of the 25 reporting jurisdictions. Only six show readings below 50 in March and in February. Meanwhile, 10 of 25 were below 50 in January indicating contraction. The PMI scores have moved up to indicate fewer countries with contracting activity. Looking at the changes in the composite PMI values from month-to-month, 6 of them showed slowing in March compared to February; in February 4 slowed relative to January, and in January 7 had slowed relative to December. That means for the bulk of the 25 reporting entities, conditions were expanding or unchanged indicating relatively robust activity across the group for these months.

Sequential trends We can further look at the sequential readings, the 3-month, 6-month and 12-month averages. Over three months on average, there were eight jurisdictions below 50, the same number over six months but only seven that were below 50 over 12 months. Few reporters in the table were contracting. The number slowing, however, stands at 7 over three months, compared to six months then jumps to 20 comparing 6-month values to 12-months values. The slowdown is much broader in this period. And the number slowing clocks 18 over 12 months compared to 12 months ago. These statistics suggest that the year-over-year and the six-month to 12-month periods both show broad slowing across the reporting member countries but that slowdown tendency was greatly attenuated over the most recent three months.

Standings/rankings since January 2019 Next we evaluate these indexes over a broader period. We do that by looking at the queue standings that take us back to January 2019. On that timeline, current readings show 8 jurisdictions where the queue percentile standings are below their 50% mark (that denotes observations below the median values for the period. Those reporters include the United States, Ireland, Brazil, Zambia, Kenya, Australia, Sweden, and Nigeria. The unweighted average standing is at its 54.8 percentile while the median standing is at its 61.2 percentile.

On balance, these statistics show a lot more resilience than we would not have expected given the escalation and stubbornness of inflation, the ongoing rate hikes from central banks, and the continuing drumbeat of war between Russia and Ukraine. The new problem feature is going to be the banking sector where it's unclear whether there will be an actual cascade of banking problems or whether the price that we will pay for this will simply be a curtailment of lending that will contribute to a reversal of the kind of resilience we're seeing in this report. However, it's clear that inflation remains stubborn. In the countries that have formal inflation targets, inflation is too high. Central banks continue to act to raise rates to reduce the inflation rate. And these actions should serve to slow growth in the coming months. In addition, there continues to be the adverse geopolitical environment as well as the new feature of banking sector problems that could tend to make policymakers and economic actors more cautious and could freeze-up the growth in lending.