S&P Global MFG PMIs Weaken…So What?

Asian MFG mostly turns lower in July- but it’s not trending there The final S&P manufacturing PMIs show weakening median and average readings in July. The table above shows that of the 18 reporters, only 16.7% improved month-to-month. The table sorts these observations into cohorts of PMI values. Having only 38.9% in the sweet spot of 50-55 diffusion reading cohort is telling. The 40-50 cohort growth, the first tier of output declines, houses over half of the reporters (55.6%) in July. That proportion is slightly larger for the 12-month average and has been even worse (larger) for the 12-months before that.

In July, there are 10 reporters below the 50% breakeven mark. That total has been at 9 to 10 over three months, six months, and 12 months.

The number (percentage) of reporters in the first upper tier of growth 55-60 has been consistent at 5.6% (one reporter).

The pattern of the manufacturing PMI readings suggests there is a lull in manufacturing. But manufacturing has been stagnant and weak-to-contracting throughout 2023. In 2024, conditions began to improve. We are now seeing a back off in July compared to June. However, the median reading in June had improved relative to May, although the July reading is below the May median and it was last weaker in December 2023. In contrast, the average for the group is back to its April value. There is some easing of conditions, but it’s a mixed bag.

Data-watching market-watchers are looking for consistencies and trends to jump on. Unfortunately, there is little evidence here of any new trend. July is weaker than June but 2024 has been stronger than 2023; it is far too soon to look at a one-month drop as evidence of new weakness.

Summing up This is especially true with the Bank of England today choosing to cut rates on a tight vote. In the U.S., Fed policy is contingent, but the Fed clearly leans toward cutting and will probably need to see worse data to not cut rather than needing better data to justify a cut. We are living in asymmetric times, despite the Fed talking about its dual mandate risks being balanced. This gives market expectations a certain tailwind and participants are interpreting incoming data in the most bullish way possible. In truth, data remain mixed. The Bank of Japan sees enough strength to justify a long-awaited rate hike. And if we are truthful with ourselves, we are also seeing a great deal of political pressure put on central bankers around the world. Politicians want lower rates; and they want the central bankers to call what is still over-the-top-inflation low enough and to focus more on hitting targets in the future. Central bankers seem to be swallowing their pride and going along while giving us defiant speeches of independence.