Economy in Brief

The S&P PMI readings for May 2024 in manufacturing show a tendency for improvement month-to-month. The median PMI value increases to 50.6 from 49.8, While the proportion of reporting units improving moved up to 50% from 33%, leaving that proportion at a dead-neutral level.

PMI levels summarized The global medians for individual average readings sequentially over 12 months, six months, and three months show improvements from 49.3 to 49.4 to 50.2. The gains are steady but very moderate improvements in train with all values clustered closely around ‘50’ which is the break-even point between expansion and contraction for these manufacturing PMI indexes. While the average reading over three months is at 50.2 and the average in the current month is at 50.6, these are values that marginally above 50; it's hard to get too excited about the fact that the indexes are up above 50 again, indicating manufacturing expansion. The median is above the level of 50 for the first time in 22 months – a long stretch for manufacturing contraction. But the average reading for this same group has been above 50 for four months running and had been below 50 for 18 months prior to the start of that string.

The breadth of improvement The proportion of reporters improving over three months moved down to 44% after rising sharply to 94% over six months and sitting at 83% over 12 months. These results have flipped from what had been reported previously as year-over-year weakening in the PMI indexes compared to a year ago had been common. But now, there's been enough improvement that we're looking at year-over-year increases as well as net increases over six months. But since there has been improvement from those lows, the proportion of reporters improving over three months has declined to 44%.

Very neutral neutrality is indicated The rank standing for the diffusion readings of these reporters in the table shows nine of the 18 with values below 50% and nine of the 18 with values above 50%. The median value of all these individual percentile queue standings is also at 50%. All of this underscores the sense of neutrality in this report as the queue standings show that values are at their four-year median values and that the median itself sits at 50% and the number of reporters who are improving on the month is also split at 50/50. And the diffusion values themselves are just beginning to rise above a diffusion level of 50 indicating an extended period of (largely modest) contraction may be coming to an end.

China, the United States, and EMU China, the U.S., and the European Monetary Area all show manufacturing PMIs that are in a definable upswing in the chart. For the euro area, the upswing is about a year old; for the U.S. and China, the upswing is a year and a half to two years in progress. The gradients are still relatively shallow but also relatively stable.

Inflation measured by the European Monetary Union’s HICP rose by 0.1% in May, a seemingly small amount, particularly after increases of 0.2% in March and in April. However, the year-over-year rate at 2.6% is higher than it was in April at 2.4%; the year-over-year inflation rate has actually risen even with that small increase in May! Disinflation progression, however, continues to be in train from 12-months to six-months to three-months, as 12-month inflation rises at a 2.6% annual rate, then barely steps up to 2.7% annualized over six months, before dropping back to 2% over three months. Over three months, the inflation rate is back to the ECB’s target. However, over 12 months, the 2.6% rate continues that string of excessive inflation numbers (now up to 35-months-nearly three continuous years) that the European Central Bank has been over target. With inflation backtracking on the month, this is the highest year-over-year inflation rate since January of this year.

Countries mostly show ongoing progress Results for the large economies in the monetary union continue to show inflation progress for the most part. There's persistent deceleration in France where the 12-month rate at 2.6% falls to 1.5% over three months. In Spain, there's a 3.8% 12-month inflation rate that deflates to 0.7% over three months. In Germany, the 2.8% inflation rate over 12 months moves up to 2.9% over six months and then hovers at 2.8% again over three months. Italy has the lowest year-over-year inflation rate of the bunch, but it shows acceleration with inflation of 0.8% over 12 months rising to a 2.2% annual rate over six months and then stepping up to a 2.3% annual rate over three months.

Core/ex-energy inflation still largely behaves... Italy's core inflation rate moves down on a consistent basis from 2.2% over 12 months to a 1.9% pace over six months to 1.7% annual rate over three months. In contrast, the German rate excluding energy is 2.7% over 12 months, down to 2.6% over six months and back up to 2.8% over three months, stuck in a very narrow range and still substantially above the target sought by the European Central Bank.