PMI Weakness Finds Its Stasis

The PMI flash data show essentially flatlining, steady, responses over the last six months. There is a hint of uptrend in the EMU manufacturing series but not much more than a hint. Across reporters in the table, three-month changes in the individual gauges are small everywhere, except the U.K. where relatively strong gains are posted.

Over three months all services gauges are weak with Germany’s 5.6 points decline the largest and the U.K.’s one point decline the smallest. Manufacturing shows two declines over six months, one in France and one in Japan. The U.S. and Germany show the largest gains, posting a rise over six months of about 2 points. However, services gauges dominate the total PMI measure that show declines across the board over six months, with Germany, the EMU, and France logging the largest drops over six months. These point-to-point changes might exaggerate the trend. The average PMI gauges are far more stable.

The 6-month vs. 3-month averages were consistently weaker by about one point or less for the PMI total index except for the U.S. where a near 2-point drop prevailed. Manufacturing 6-month vs. 3-month PMI averages differ by small inconsistent amounts of change across table reporters – the U.S. logs a drop of one point. And the services 6-month vs. 3-month average difference fell by about one point across the board across table entries, but nearly double that in the U.S.

The color-coded table shows strengthening and weakening on the monthly and period sequential data. Monthly data show a good deal of chaos. The 54 observations over those six reporters with 3-metrics each (Composite, Manufacturing, and Services) over 3-months tallied 25 monthly weakening observations vs. 29 strengthening observations. That is quite mixed.

However, the broader sequential changes are much more consistent, showing over the three periods 45 weakening observations vs. nine improvements over 54 observations. The sequential data show clear-cut weakening. Only manufacturing shows strengthening over three months – three of them: for the EMU, Germany, and the U.K. Over six months only the U.S. shows an improvement- it was also in manufacturing. The upshot is that monthly data may be chaotic, but there is a clear trend there.

The queue standings show an average composite standing across members in their 28th percentile. Manufacturing stands in its 11th percentile and services in its 35th percentile – all quite weak. However, only the EMU, Germany, and France had composite PMI diffusion index levels below 50 in December. This underscores that to be weak (in a ranking sense) the PMI does not need to show a decline (reading below 50). PMIs are usually above 50 because services and manufacturing usually expand. Even over this weak-stretch, the service sector PMIs across the reporters in the table were above the breakeven level of 50 about 64% of the time vs. 53% of the time for manufacturing.

From May 2021 to June 2022, the proportion of reporters with both services and manufacturers at PMI values above 50 in the same month, was above 50% consistently. After July 2023, fewer than 20% of the reporters have both services and manufacturing above 50 in the same month. This has been a period of protracted weakness - and it continues.