Economy in Brief

The OECD 7 and U.S. LEIs each gained 0.1% in September. Europe’s Big 4 and Japan were both flat. Asia’s Major 5 gained 0.1% in September. Progressive annualized growth rates calculated for these countries/regions from the normalized indicators show gathering strength for the OECD 7, Japan, and the United States. Asia’s Major 5 are on the cusp of progressive acceleration and should probably not be excluded on a technicality because their 3-month and 6-month growth rates are so much stronger than other regions even if the 3-month pace is a tick slower than the 6-month pace. And, only Japan and Asia’s Major 5 have queue standings of their LEI levels (top panel) that are above their historic medians (above a rank of 50%). The OECD 7, Europe’s Big 4 and the U.S. all are in or at the border of their bottom third rankings on the amplitude-adjusted level assessment.

Gaining traction... Recalibrating the ranking for growth rates of LEI measures, rather than ranking on levels, shows a 91.4 percentile rank standing for China, a 74.7 percentile ranking for the U.S., a 68.2 percentile standing for OECD 7, and a 64.7 percentile standing for Japan. Only Europe’s Big-4 grouping is below its median value. These are ranked on six-month growth for data back to mid-1999. All the six-month averages are gaining and the changes over six months on LEI levels also show gains across the board. The OECD prefers to assess its LEIs over six-month periods. On that basis, the LEIs are broadly GAINING TRACTION.

Amplitude adjusted assessments- The third panel of the table shows ratios to trend for the LEIs on an amplitude-adjusted basis. Only the U.K., Japan, and China are consistently above 100 indicating above normal expansion. The LEI level standing shows above median performance for the U.K., Japan, Germany, France, and China.

Momentum: In September, 10 of 18 manufacturing PMI observations across countries and areas listed in the table deteriorated. Over three months, half of the observations deteriorated compared to their values over six months. Over six months, 8 of 18 diffusion metrics-slightly less than half- deteriorated compared to their value over 12 months. However, over 12 months, only four observations improved leaving 14 in the deteriorating mode. Conditions are still considerably mixed between improvement and deterioration, but they are clearly tilted toward more deterioration than toward more improvement, indicating that globally manufacturing continues to be under pressure.

Sequential comparisons of expansions vs. contraction: As to actual expansion or contraction on the PMI gauge, 14 of 18 show contraction in September while 12 show contraction in August and 14 show contraction in July. The preponderant result shows contraction, meaning PMI values are below 50. Looking at broader comparisons, over three months 13 of 18 reporters have values showing contraction, over six months 12 of 18 show contraction and over 12 months 11 of 18 are indicating contraction.

Assessment favors WEAKNESS: While the statistics about improvement versus deterioration are somewhat more mixed, it's clear that for most countries whether they are improving or deteriorating slightly they are nonetheless still in the contraction zone as far as the manufacturing sector is concerned. The global manufacturing economy remains under pressure.

The strongest: Only Mexico, Russia, Indonesia, and India register manufacturing PMI values above 50 over all three horizons of three months, six months, and 12 months. In the case of Russia, I would say that statistic is suspect, but it's the one that's reported and having the alternative it's the one that I use.

The weakest: Germany is the only country with readings over three months, six months, and 12 months that all are below a diffusion value of 45.

Broader, five-year rankings- The queue percentile standings for this group of countries are extremely weak; the median reading, in fact, is 26.9%. The median sits barely above the lower quartile which is an extremely weak position. Russia has the strongest percentile standing at 98.1% but probably only if you're willing to suspend disbelief. After that, the highest reading is India's 82.7%, Indonesia's 73.1%, and Mexico's 69.2% China has a 59.6 percentile standing in September. However, among the largest industrialized countries, the readings are the weakest. The euro area has a standing in its 7.7 percentile, which includes Germany at a 7.7 percentile standing, and France at a 5.8 percentile standing. The U.S. has a 25-percentile standing. The U.K. has a 5.8 percentile standing - the same as Canada. Large economies have extremely weak readings for the most part. China is the exception as the only large economy with a standing above its 50th percentile.

Relativity... And while I like the standings data because it accounts for structural historic differences, it's also true that relativity in some cases is not the bets metric. This high standing for China, for example, refers to a manufacturing PMI value of 50.2 which places it barely in expanding territory. Since we have been in a prolonged period of impacted growth, when rankings over the last five years we are comparing everything to a period in which most of the readings have been extremely low except for a few relatively strong observations that occurred when countries temporarily broke out strongly from the Covid lockdowns.