Economy in Brief

Among these 18 countries and regions reporting manufacturing information in February, 12 of them show month-to-month improvement. Ten showed improvement over three months compared to six months while only three have improved over six months compared to 12 months. Eight of eighteen showed improvement over 12 months compared to 12-months ago.

The median manufacturing PMI reading for February is 49.5, just below the level of 50 that marks the level where manufacturing is considered unchanged. The average over 3 months, 6 months, and 12 months all are below the 50-mark. However, the median reading in the table marked with percent sign (%) measures the percentage of the raw PMI diffusion readings that are improving period-to-period. All are above the 50% mark, showing that there are more reporters showing improvement period-to-period than showing weakness. However, the percentage improvement does not reflect the value of the underlaying PMI index or if it is above or below its break-even value; it only shows relative improvement.

In that sense, there are some mixed signals in this report. Conditions are slowly improving, but they still show a tendency for output to fall.

The table also looks at a broad assessment by ranking the level of the diffusion reading this month across all countries on a timeline back to January 2021. On this basis, 9 of 18 are below the 50% mark. This metric identifies the median of the series since January 2021. The median of the rank standing is at the 49-percentile mark, just below 50%, which marks the median of group for the entire period.

None of this is really good news for manufacturing globally. But it is an absence of really bad news and contains news that conditions are worsening. Improvement is more common than worsening. So that is something. It is a back door to better times ahead but again it is true that manufacturing has been weak for quite a long time. In the last 31 months, the median for the group has been above the ‘50’ mark only twice in June and July of 2024. However, over the last eight months the diffusion median has been at a reading of 49-point ‘something.’ The manufacturing median has been on cusp of moving to signal expansion. But manufacturing in the global economy has not been able to go over the hurdle despite as close as it has come. We remain dwellers on the threshold…of expansion. Still not quite there yet.

French inflation trends alone among the largest four EMU economies is showing a break lower. Twelve-month inflation across the EMU is however quite mixed with Germany and Spain knocking on the door of 3% inflation while France is below 1% and Italy is below 2%.

And the divergences diverge further from there...

German inflation rises from 2.8% over 12 months to a 3.3% pace over six months to 4.1% over three months – a classic ongoing acceleration. Spain’s 12-month pace of 2.9% also steps up to 4.5% annualized over six months then explodes to 5.7% over three months. The accelerations are not good for central bank trying to hit a 2% inflation goal.

But the accelerations are counterbalanced by some moderation and even weakness. French inflation decelerates steadily, and prices actually decline over six months and three months. For Italy, the 12-month pace of 1.7%, steps back to 1.3% over six months, then rises back to a 3% annual rate over three months.

Even so, the best news is from Italy and Spain on the measure of core inflation. Each of them reports a steady menu of inflation rates over 12 months, six months, and three months below 2% and decelerating. This is notable because both Italy and Spain have badly behaving headline inflation trends.

However, energy prices are moving up, too, over the last three months as well as sequentially.

While inflation is still far from well-behaved, it may still be slowing. Signs of conforming Italian and Spanish core results are the most encouraging news. Still, over the past five years, inflation has averaged 3.2% in France and 4.4% in Germany, with Italy and Spain seeing inflation at the 3.7% to 3.8% mark. Core inflation over five years, however, has been lower and closer to the 2% goal at 2.5% in France, 2.8% in Italy, 3.2% in Spain, and 3.6% in Germany. Still, it’s not there but it is closer.