Manufacturing PMIs Waffle and Remain Weak in July

Manufacturing PMIs from S&P waffled in July. Among the 18 reporters, 44% of them improved on the month, a slightly greater proportion than the 38.9% than improved in June and the 33.3% that improved in May. But in all those cases, there is more deterioration than there is improvement although the median reading rose in July. It rose, but it didn’t smell like one.

The median reading improved on the month, rising by 1.4 points to a level of 49.2. The reading from manufacturing overall is below 50, confirming that output continues to decline globally. Looking at the averages from 12-months to 6-months to 3-months. The median over 12 months is 48.7, falling back to 48.4 over 6 months and to 48.2 over 3 months. The data show a very gradual erosion and on the other hand also some relative stability at readings that are just slightly deteriorating in a zone below stable output. Yeah… the results are somewhat uncomfortable, but they're not terrible. The trends don't clearly suggest that deterioration is eminent or that rebound is in the making. It's just a steady drum beat of underperformance and slightly depressing news.

Month-to-month 9 of 18 reporting countries and economic units in the table saw their manufacturing sectors worsen. Over 3 months twelve of these reporting areas worsened; 8 worsened over 6 months compared to 12 months; and over 12 months, 14 are worsening compared to 12-months ago. There's not a clear signal here from the progression. Clearly, the year-on-year comparisons are the weakest and there's some let-up in that weakness over 6 months, but then on the transition to 3-months there's a deteriorating tilt once again and we are left unsure where momentum is headed.

The rank, or queue percentile, standings have a median value in the 25th percentile, in the lower quartile of their range of values for the various countries and reporting units as of July. Only four countries have readings in their 80th percentiles: those are Indonesia, ostensibly Russia, India, and Mexico. The very weakest rankings are in the most developed areas: a 3.8 percentile standing in the EMU, a 3.8 percentile standing in Germany, a 3.8 percentile standing the U.K., and a 5.8 percentile standing in France. The proximity of extreme weakness to the war zone is notable - except for Russia, of course.

Table 2 breaks the readings down by data cohorts according to the diffusion values. There we see significant slippage in July with fewer countries in the 50% to 55%, or normal range. The 40% to 50% cohort has the same percentage in July as June with over 70% of the members in that category. But there's an increase in the 30% to 40% diffusion range to 5.6% in July from zero previously. The timeline on these statistics shows that the 50% to 55% cohort had averaged 30% of all members over 12 months; that compares to 48.7% over the previous twelve months. The cohort population has slipped from that 30% proportion ‘in the normal zone’ over 12 months to 27.8% over 6 months and to 22.2% over 3 months. In July, it slipped to 16.7%. The slippage seems to show up more in the cohort grouping than it does and the median. We see in this table the percentage of reporters that improve period to period. These are figures that are cited above; note that the best that they do in any period is to score a neutral 50 percentile standing. Out of 18 reporters, more than half indicate declines in output over all periods. There are slightly more showing output declines (readings below 50) over 6 months (12) and 3 months (11) than over 12 months (10), but there's not a clear signal of progression. A clear progression trend is present in the monthly data that show 12 reporters out of 18 below 50% in May, June shows 13 and July shows 14.

Lazy, hazy, crazy, days of summer...and global warming This is in some sense the perfect lackadaisical, hot, dog-days-of-summer report that comes and goes and leaves us with a feeling of ongoing unease but nothing to really sink our teeth into. Summer data often are like this with trends extended, people off on holiday, and special summer agendas, activated as management plans for the fall.

But changes are in the wings. The U.S. is revving up for the coming political season. There is more conflict among members of the Western alliance on how, and how much, to support Ukraine. Russia has shown its own vulnerabilities to ongoing war. Ther is a food supply fallout. The preoccupation with coming recession is undergoing some revision. Inflation has, in some cases, fallen faster than expected and this has policy-makers in a quandary about where to take policy next. In some sense, we are waiting for the other shoe to fall… or for the fallen one to miraculously reappear on our foot.