Economy in Brief

Standard and Poor’s composite PMI readings for August improved globally in 19 of 25 reporting countries. This widespread improvement showed far better improvement in breadth than what has been registered by manufacturing sectors among countries that report those data.

The August result was far better than July when only 10 of 25 reporting countries improved month-to-month. Similarly, June was a weak month with only seven composite PMIs improving month-to-month.

Despite the strong improvement in August, the three-month average finds improvement compared to six-months ago in only 7 reporting units. However, the sequential averages also have a stronger history as the six-month average shows that only 6 reporting units were weaker compared to 12-month averages. The three-month comparison is to a six-month period that saw broad gains. Even so, the 12-month comparison to 12-months ago shows improvement in only 12 of the reporting units, approximately half of them.

Over 12 months, most large/developed economies performed worse including the United States, the European Monetary Union, specifically, Germany, France, Italy, and Spain, as well as Japan. China worsened as well. The United Kingdom was an exception, improving over 12 months compared to 12-months ago.

The unweighted average PMI readings for a group, consisting of the U.S., the U.K., and the European Monetary Union, shows steady improvement from June, to July, to August. Despite uneven sequential results the unweighted average PMIs also have improved from their 12-month averages to their six-month average, to their three-month average.

The BRIC countries excluding Russia (BIC) show steady monthly improvements and show consistent, strong readings above or just below the 55 mark for over three months, six months, and 12 months.

The overall averages of the PMI readings show a tendency to increase but not a clear sequential move in that direction. The overall median readings show the same general reading and trend.

On a composite PMI basis, the number of areas with readings below 50, indicating overall economic contraction, have been reduced to four in August. They total 4 over three months and six months compared to 6 over 12 months. Few economies are showing overall contraction on this measure. While there were as many as eight contracting in July and in June, generally over three and six months the number showing contraction has been small.

The far-right hand column gives the queue percentile standings which place the August readings in an ordered queue of standings in the last 4 ½ years of data. These readings show 12 reporters with current standings below the 50% mark. A reading below 50 would put them below their median over this span. The average reading for the entire group is for a queue standing at 51.8% while the median is at 51.0%. Over this period the 12 readings that are below 50% are simply below their respective medians reading; they do not indicate contraction because these are rankings based on queue standings rather than diffusion data as in the first six columns of data in the table.

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.

In this week's newsletter, we examine monetary policy in the Asia-Pacific region. Fed Chair Powell’s recent Jackson Hole remarks have further solidified expectations of an imminent easing cycle. And this has removed a big barrier to many central banks in Asia in their pursuit of a domestic easing cycle as well. Nonetheless, some central banks in the region have already begun implementing interest rate cuts ahead of any Fed moves. We also take a closer look at Japan, which stands out among major economies due to its distinct approach to monetary policy calibration. While Japan is also pursuing monetary normalization, its path remains unique. Additionally, we address key themes in the Asian region, focusing on semiconductor stocks and the electric vehicle (EV) sector. In the semiconductor space, there may be overly optimistic investor expectations, given that extraordinary growth rates are unlikely to be sustainable indefinitely. As for the EV sector, trade measures against Chinese imports are both intensifying and expanding across more economies, reflecting deeper geopolitical entanglements.

Overall, monetary policy in most of the region is shifting towards easing, with domestic inflation under control and major central banks already implementing rate cuts. Japan, however, continues to follow its own course with policy tightening. Meanwhile, uncertainty persists in the semiconductor and EV markets due to evolving investor expectations and escalating geopolitical tensions.

Monetary policy Central banks in the Asia-Pacific region are increasingly transitioning towards easing monetary policy, though policy rates have largely remained stable in recent months (Chart 1). Nonetheless, some economies have already begun reducing interest rates. For example, China cut its rates further in July to boost demand and support struggling sectors like the property market and household sector. In August, New Zealand's central bank implemented its first rate cut in four years and signalled the possibility of further easing. Additionally, the central bank of the Philippines also lowered its policy rate in August, becoming the first Asian central bank to do so in this cycle, aside from China. Recent comments from Federal Reserve Chair Jerome Powell, who stated in his Jackson Hole speech that “the time has come” for the Fed to begin lowering rates, have bolstered expectations for increased monetary easing in the Asia-Pacific region. Powell’s remarks align with the broader trend of most major central banks shifting from tightening policies to easing measures.

Unemployment fell in the EMU in July to 6.4% from 6.5% in June. The EMU rate has fallen over three months, over six months, and over 12 months.

Rate trends run mixed Among the 12 long-standing EMU members in the table, unemployment rates fell in four of them in July and rose in three. Over three months, 6 of 12 unemployment rates fell (with two unchanged). Over six months, five of 12 fell (with three-unchanged). Over 12 months, four of 12 fell with two unchanged. The Monetary Union is experiencing what is probably the late stages of unemployment rates settling lower as other members see unemployment rates beginning to rise. In Germany, the unemployment rate has been rising by four-tenth of a percentage point over 12 months, the same as Ireland; there is a six-tenth rise in Luxembourg, and a one-percentage point gain in the Netherlands and in Finland.

On the other side of the coin, unemployment rates over 12 months fell by 1.3 percentage points in Italy, by 1.2 percentage points in Greece, and by 0.5 percentage points in Austria and in Spain.

There has been a focus on how weak conditions remain in Europe, especially because Germany and its industrial gauges have been so persistently weak, but the unemployment trends tell a different story of mixed trends- with a number of still very economic-friendly trends in play.

Unemployment rate levels in EMU are low Moreover, the level of unemployment rates in the EMU is low. Only Luxembourg and Finland have unemployment rates above their respective medians on data back to 1995. Six reporters in the table have unemployment rates that rank in the bottom 20th percentile of their historic results since 1995. Three others congregate near the border of their lower 25th percentile boundary. Unemployment rates in the EMU are undeniable low with few exceptions.

Even so rates are clearly rising for some countries, most notably, Europe’s largest economy, Germany.

In many comparisons of data with January 2020 conditions today do not compare favorably to what they were before Covid struck but for unemployment rate comparisons, we find seven of these reporting EMU members have unemployment rates lower than they were before Covid struck. While many industrial comparisons and confidence comparisons show that current conditions are worse, on this comparison, unemployment rate comparisons are considerably more upbeat. Luxembourg is minor exception with its rate one-tenth of a percentage point higher, Belgium and Germany are two more exceptions with their respective rates higher by just two-tenth of a percentage point. Austria’s unemployment rate is higher by 0.5 percentage points and Finland’s rate is higher by a sizeable 1.7 percentage points.

Unemployment elsewhere... For comparison, I include unemployment rates for the U.S., the U.K., and Japan. The U.K. claimant rate is much higher with an 82.3 percentile ranking. All three of these countries have unemployment rates higher in July 2024 than in January 2020.