Composite PMIs Tend to Weaken in May

Composite PMI data from S&P Global show broad weakening in May with 10 jurisdictions in the table showing weaker results month-to-month compared to 8 showing improvement. The U.S. and China showed the largest service sector pull backs on an ongoing basis. China does not yet post a composite value, but its composite PMI has been currently caught up in China's zero COVID policy and the ongoing rolling lockouts that have permeated its economy have weighed heavily on economic performance in recent months.

In May, the 18 jurisdictions in the table show an unweighted average of 54.3, down from 54.8 in April but stronger than 53.5 in March. The median, however, fell to 54.2 in May, below April's median of 55.8 and below the March median of 54.6.

The number of jurisdictions reporting composite PMIs below 50 are few and far between for all these periods. In May only three jurisdictions are below 50, in April there are two, and there are no more than two or three for any monthly or sequential interval in the table.

There are, however, more jurisdictions that are slowing. In May 10 jurisdictions show slowing; that's a broader slowdown than in April when four reported slowing, but slightly fewer than March when 12 jurisdictions reported slowing. The sequential comparisons show that five are slowing over three months, 10 are slowing over six months, but only four slow over 12 months compared to 12 months earlier. The data on slowing are mixed although May shows broad deterioration and the median data confirmed that the slowing is ongoing in recent months. The counterpoint is that average data are less supportive of that trend.

Sequential data also give a mixed reading on slowing if we look at the averages and means for their different periods the average PMI shows a slowing from 12-months to six-months and then just a technical upturn over three-months. The median shows a slowing from 12-months to six-months and then a revival over three-months that brings the median almost back to its 12-month value. That is very weak evidence of slowing – but there is no evidence of acceleration.

We can obtain an assessment of performance looking at the queue standings. These are calculations that place the current composite value in its Q of data back to January 2018 expressing the result as a percentile standing. On this basis, over this period the weakest performance is in Ghana, followed by Russia, the U.S., and then Nigeria. The U.S. composite has only a 32-percentile standing, meaning it has been weaker than this May value only about 1/3 of the time over this period. Countries that have top ten percentile standings on this timeline are: Singapore, Brazil, and India. The average queue standing for the period is 61.7%; the median standing is 67.9%. These are moderately firm readings for the average in the median.

The table provides mixed signals about momentum in the global economy. Since we are looking at composite figures, we are looking at broad measures that include both the services and the manufacturing sectors of the countries being evaluated. We do see some pronounced tendencies for weakness over the last three months, May, and March in particular. However, taking the full span of the period for three months, there are only five instances of slowing compared to six-months. The broader annual comparisons show only three instances of slowing.

The broad composite indexes show slowing less frequently than the manufacturing PMIs because service sectors are more prone to expand steadily. Services can't be stockpiled unlike goods. And that tends to limit the ability of temporary over-consumption or under-consumption. Because of the existence of inventories, manufacturing is subject to variability from that cause as goods can be stockpiled then stocks can be run down. Inventories can provide separation between the performance of production and consumption for goods. The percentile standings are the best way to view what these composite PMI values mean. On that basis, PMIs are firm in the current month; their sequential momentum is undistinguished. The main fly in the ointment is the tendency to see weakness recently and that's substantial in two of the last three months that is something that will bear watching.

Summing up There are lingering supply chain issues that go back to the initial phase of the pandemic. There are new supply issues and other shortages being created by the Russia-Ukraine war. COVID is still active and currently having the most disruptive effect on the Chinese economy. Inflation is quite high globally and central banks are taking a concerted action against it or planning to do so and that's a separate factor that affects the outlook and affects the outlook more than it affects the current conditions that we monitor with this report. And that's something to bear in mind. Challenges to growth still lie ahead.