Most MFG PMIs Back Off in August

Only four of these 18 manufacturing PMIs improved in August: the United Kingdom, South Korea, Japan, and Turkey. August compares to July when only two reporters improved with two others unchanged. June was the opposite case in which fifteen improved month-to-month. So, in the past two months manufacturing conditions have unwound globally, with few exceptions.

Over three months, the average increased relative to the six-month average in only six-reporters. But over six months, conditions improve broadly compared to their 12-month average with only three deteriorating. Over 12 months compared to the average of 12-months ago, eight reporters are worsening against 10 improving.

Manufacturing has been giving back the gains it was making earlier in year. However, the results are still subtle with the median reading over three months at 49.7, compared to 50.5 over six months and to 49.6 over 12 months. There is little change here.

The country standings for the monthly diffusion values are still tilted to the weak side. The median percentile standing across members is a low 34.8 percentile. Ten members have readings below their 50th percentile. Only three reporters have percentile standings in August above their 70th percentile standing.

Diffusion data show that over 12 months compared to 12 months ago, conditions improved in 55.6% of reporters. Over six months compared to 12 months, conditions improved in only 38.9% of reporters compared to a year ago. Over three months, only 22.2% of reports improved compared to six months. Diffusion underscores the slippage that has been in progress for manufacturing.

Large, developed economies, as represented by the U.S., U.K., EMU, Canada, and Japan, have PMI readings at an average below 50.0 on all horizons and have an overall queue standing at their 31.8 percentile. BRIC countries have a queue standing at their 47.1 percentile. Asian countries have a queue standing above the 50% mark, at their 53.4 percentile. The most highly developed countries are the laggards.

There is a great deal of weakness in the core developed economies and their central banks have embarked on programs of rate cuts or have such programs pending, as in the United States. Japan also is nursing a program of rate hikes after its flirtation with deflation. Yet, inflation globally has fallen. And that has led to optimism about future central bank policy. But after banks embarked on easing programs, inflation stopped falling and is above the targeted level of 2%. This leaves the future in a quandary. Will inflation resume falling, allowing central banks to continue easing, or is inflation really stuck and are central banks hamstrung on their policy options?