The PMI Plot Thickens...

The unweighted average among the 8 units reporting in the table improved month-to-month. The composite average from 12-months to 6-months, to 3-months, gets progressively stronger by a small amount. But the July value for aggregate data is below the recent (lagging) 3-month average that is constructed from hard data from June backward. As a result of these data entanglements, the trend for this group is quite flat and hard to pin down.

However, there are trends and events of importance in this month’s report- especially regarding the performance of the U.S. services sector that need attention.

The progressive average shows strengthening from an average over 12 months, to six months, to three months for both aggregated manufacturing and services sectors. Yet, both services and manufacturing are weaker in July than over their respective previous three-month averages.

Month-to-month changes show a split situation in July; 12 of 24 sector readings are weaker and 12 are stronger. Among these, five total-indexes (or composite indexes) are stronger month-to-month while three are weaker. But in June many more composites weakened and in May many more strengthened.

The queue percentile standings that position the monthly PMIs in a string of data back to January 2020, show only nine of 24 rankings above a standing of 50% which marks the median for each data-series on this timeline. Of those nine, three are India, while Japan and the U.S. account for another two each. The EMU and Germany each have service sector standings above the 50% mark.

The U.S. service sector reading headlines this report Interestingly, the U.S. ranks above 50% for its composite and for services. Services show a strengthening in each of the last three months. This is huge! It stands in stark contrast to astonishing weakness reported by the ISM services report in June. With the U.S. strength in services this month reported by S&P, there is no squaring those two reports as have a timing difference or some other technicality. That possibility is gone. They are simply different and quite different. In fact, the S&P service sector ranking for the U.S. in July has a 69-percentile standing- a standing in the top one-third of historic observations since January 2020. In contrast, on this same timeline the ISM services gauge is the third weakest observation over those 54 months. These are vastly different pictures of the performance of the U.S. services sector, an especially important sector for the U.S., for the Fed, and for global monetary policy. All eyes are on the Fed with inflation having notched lower again and the Fed looking for confirmation of a lower inflation trend to pull the rate-cut trigger. Inflation is most intense in the U.S. services sector. But it broke lower in June. Is the services sector weak, and will inflation continue lower? Or is the services sector strong, and will service sector inflation rise and remain stubborn? We are looking at severely conflicting data. The ISM services diffusion reading in June has a value of 48.8; that compares to a reading of 55.3 in the S&P survey and now to 56.0 in the S&P July survey.

Not only do opinions on the economy clash but so do data that pertain to the same phenomena… That is not reassuring.

PMI data from S&P generally show a firm-to-strong services sector globally. In July, only France and the U.K. have PMI rankings below the 50% mark. But manufacturing ranks below the 50% mark everywhere except India (India with a strong 87.8% standing). However, the changes in raw monthly diffusion data in the S&P show the changes in PMI levels over three months are negative for the Composite, for manufacturing and for services. However, for the U.S., the 3-month change shows a higher composite, a sharply stronger services sector, and a somewhat weaker manufacturing sector.

We are on the data rollercoaster. And with the changing dynamics in the U.S. political scene, we are going to be looking at even more intense pressure and scrutiny on the Fed in the wake of an assassination attempt on candidate and former President Trump, with a new presidential candidate, Kamala Harris. U.S. policymaking has just stepped into the Twilight Zone. Where is Rod Serling (who is RS?) when you really need him?