Composite PMIs Show Very Minor Improvement in December

The composite global PMIs over a group of twenty-five countries and regions in December shows some very slight improvement. The average unweighted composite PMI overall moves up to 51.0 from 50.5 in November and from 50.2 in October. The median PMI in December moves to 50.4, up from 50.1 in November and 50.0 in October. These shifts are clear, if also exceedingly microscopic, improvements in the monthly PMIs. • Among these twenty-five jurisdictions, eight of them worsened in December compared to November; November had seen twelve worsen month-to-month, and October saw sixteen worsen compared to September. • We can also account for values above and below 50 since 50 is the separating line between a PMI indication of expansion vs. contraction. In December, eleven composite PMIs were below 50, the same as November, while thirteen were below 50 in October. • On balance, the average and the median PMIs show some improvement in December as well as the tendencies to slow and the tendency to contract. However, the change in these tendencies month-to-month is small.

We can engage these same metrics looking at 3-month, 6-month and 12-month averages of the underlying data. Looked at this way: • The average PMI weakens over 3 months compared to 6 months and weakens over 6 months compared to 12 months as well as over 12 months compared to 12 months ago. • The median is unchanged in three months compared to six months; over six months it's weaker than it was over 12 months. • Slowing propensities show no clear pattern as twelve jurisdictions slow over 12 months, which steps up to eighteen over 6 months but then drops back to thirteen over 3 months. There is no clear pattern there. • As for jurisdictions below 50, there's a slight tendency to worsen but no clear sense of direction as eight jurisdictions are below 50 over 12 months, that steps up to eleven below 50 over 6 months, and that drops back to ten being below 50 over 3 months.

The queue (or rank) standings The queue percentile standings have been becoming slightly more equivocal than they were. Eleven of the queue standings that assess growth from the period dating back to January 2019, a 60-month observation period, have values above 50, indicating that the metrics in December 2023 are above their medians for this period. The other fourteen have values that are below 50 indicating sub-par performance. The average queue percentile standing is at 45.9, an average that's below the median of 50. The median of the queue standings in December is at 35, significantly lower and indicating more chronic weakness than the average metric. Out of the twenty-five observations, five are in the lower quartile of their historic queue of data and five are in the upper quartile of their historic queue of data, relative balance.

The readings on balance are weak and the tendencies for weakness, contraction, below median performance, and slowing are still substantial even though they may not all be dominating the other trends. For example, in December, having eleven out of twenty-five of these observations showing contraction is a bad result, but that’s less than half of them. Having eight of twenty-five slowing certainly indicates that less than half of them are slowing; however, eight out of twenty-five is still a large proportion that is weakening. And this occurs with the average and median PMI values in December just barely above 50: the average at 51 the median at 50.4. Moreover, weakness is more concentrated among the larger most developed economies magnifying that weakness.

Sector results The manufacturing readings are still predominantly weaker, especially month-to-month. The service sectors are not as widely, and explicitly recognized as separate observations across countries and regions. However, composite PMI measures clearly are showing more strength and firmness than manufacturing, judging from the difference between the total PMIs and the manufacturing PMIs. Among those countries and areas that do give a separate service sector observation, the euro area, Germany, France, and Canada display PMI readings that are below 50 in December. Among the ten countries that give us percentile standings for the service sector, the average percentile standing for that sector is 72%, far better than for the composites and far better than for manufacturing. The manufacturing median reading for December is 47.9, the median for three months is at 48.4, and the median manufacturing percentile queue standing is at its 20.8 percentile (much weaker than 72%).

Summing up The impulse for weakening clearly continues to come through the manufacturing sector. And although manufacturing remains weak, it is more ‘weak,’ than it is getting weaker. The global economy seems to have reached a soft spot and continues to hover there. Gauging a trend change now requires a micrometer. It is still unclear if this is the pause that refreshes or if the economies are marking time before conditions worsen. Central banks continue to fight inflation that is over the top of their respective ranges; however, the inflation rates have come down globally and central banks are generally fighting inflation less intensely than they were earlier in the cycle; several may be on the verge of promoting rate cuts within a few months. Many see that as the most likely case for the U.S.