Flash S&P PMIs Are Mixed in October

Manufacturing slides as services waffle and ease The S&P PMI flash survey this month is difficult to summarize since its message is split. There are six respondent areas with three sectors each; and of these 18 observations, 9 are stronger this month and nine are weaker – split decision! The three EMU sectors are weaker in October while the three U.S. sectors are stronger. The manufacturing sector is stronger on the month except in the EMU and France. Services are weaker everywhere month-to-month except in the U.S. and in France. The U.S., the U.K., and the French composite indexes are stronger month-to-months while the EMU, German, and Japanese composites are weaker.

Sequential readings: comparing averages The sequential readings are constructed on historic averaged data that do not include flash observations for October; they show weakening across the board – all regions all sectors - over three months. Over six months, conditions are mixed with 8 worsening and 10 improving. France is alone in weakening across all three sectors over six months. Japan improves across all three sectors. Manufacturing deteriorates over six months in all reporting jurisdictions except Japan. Services are stronger in five of six jurisdictions with France the exception. The composite over six months worsens only in France and the EMU. However, viewed year-on-year, all sequential jurisdictions in all sectors weaken compared to their year ago 12-month averages, except in Japan where services and the composite improve on balance. There is a broad weakening comparing the last 12 months to the 12 months before that – a powerful generalizable result.

Other trend observations Manufacturing weakened over six months broadly as well as over three months, everywhere, strengthening in four of six monthly observations in October. Looking at a two-month comparison, the U.S., the U.K., and Germany show slightly stronger readings for manufacturing in October compared to August- the EMU, France, and Japan are weaker on balance. Service sectors show stronger reading for October than for August in the U.S., France, and Germany but only by quite small amounts. The composite reading is stronger in October compared to August only in the U.S. and Germany.

Weakness prevails for queue standing data However, the overpowering sense of the survey is that of weakness- momentum aside. There is not much push to the momentum that exists in the first place. But beyond that, the rankings for October levels of activity have extremely low percentile standings with the composite average standing at its 19th percentile, across respondents. Manufacturing averages a 9th percentile and services average a 26-percentile standing across respondents. Japan generally has the strongest rankings, but that is only a 47-percentile composite, a 19-percentile manufacturing sector standing, and a 57-percentile services sector standing. The U.S., however, as a slightly stronger manufacturing sector standing than Japan at its 23rd percentile, putting Japan in second place on that metric.

Diffusion readings mostly show weakness In raw diffusion terms, the strongest composite reading is 51 in the U.S. followed by 49.9 in Japan. The weakest composite diffusion is 45.3 in France. The strongest manufacturing diffusion gauge is at the edge of breakeven with a 50 reading in the U.S. followed by 48.5 in Japan. The weakest manufacturing reading is a 40.7 reading in Germany. Services have the highest standing in Japan at 51.1 with the U.S. at 50.9. The weakest service sector diffusion reading is 46.1 in France followed by 47.8 for the EMU.

In addition, diffusion readings mostly signal contraction The diffusion data remind us that most of these readings are signaling some degree of contraction not just weakness. Only the U.S. and Japan have sectors with diffusion readings of 50 or more and the U.S. has all sectors at or above 50 in October. Japan has only services above 50, but its composite is on the verge at 49.9.

One year-ago comparison Compared to one year-ago composites (month-to-month not average comparisons) are higher, significantly higher, in the U.S. and modestly higher in Germany and the U.K. The composite is substantially weaker over the past year in France, weaker in Japan and slightly weaker in the EMU. Manufacturing is weaker everywhere year-on-year except in the U.K. where the sector makes solid year-on-year improvement but still bears a very weak queue standing. Services are weaker in the EMU, France, and Japan and stronger in the U.S., the U.K. and Germany viewed year-on-year.

Summing up The chart above provides a reasonable overall assessment tracking the EMU results, where manufacturing decays steadily after peaking in 2021, and where the services sector shows some rebound in early-2023 then goes back to losing ground. Central banks are still hiking rates. Inflation is still excessive. While some inflation progress has been made, the inflation-fighting is not over as oil prices are rising again. The situation remains adversely impacted and the outlook is not yet out of the woods; economists debate how much forest is left and how dark it will get until we are in a clearing.