Investment Clock insights

Global (flash) PMI business surveys: Limited reassurance


Melanie Baker

22 November 2019

Global growth still appears to be slowing in aggregate, but there are more signs of bottoming out here and there and the consumer looks relatively resilient still.  There is a data trend that still worries me though. Services and labour market indicators have been weakening in several economies. If that continues, consumer resilience could be under threat and the global economy in more trouble.
The latest round of early Purchasing Managers’ Index (PMI) business surveys in Japan, the euro area, the UK and the US, taken together, provided limited reassurance on all these fronts. Yes, there were more signs of bottoming out, especially in the manufacturing indicators and a welcome (almost) across the board better tone to the US PMIs. But, this month, growth in services activity – according to these surveys – is weakening in Europe, contracting in the UK and modest in the US. Meanwhile, businesses indicated slowing employment growth in the Euro area and Japan and job cuts in the UK. 
Brexit (including the unwind of Brexit preparations) and political uncertainty are clearly affecting the UK business surveys.  Temporary as some of that may be, the PMI composite at a 40-month low though won’t be welcome reading for the Bank of England. The probability of a rate cut in Q1 next year has risen.     
Globally, there are more (patchy) signs of bottoming out, but – even putting to one side uncertainty around US-China trade relations – it still feels too early to be talking green shoots. I have my fingers crossed for a significant 2020 upturn in global activity growth, but am comfortable with a sluggish growth/avoiding recession central case for now.

Global growth still appears to be slowing in aggregate, but there are more signs of bottoming out here and there and the consumer looks relatively resilient still. There is a data trend that still worries me though. Services and labour market indicators have been weakening in several economies. If that continues, consumer resilience could be under threat and the global economy in more trouble.

The latest round of early Purchasing Managers’ Index (PMI) business surveys in Japan, the euro area, the UK and the US, taken together, provided limited reassurance on all these fronts. Yes, there were more signs of bottoming out, especially in the manufacturing indicators and a welcome (almost) across the board better tone to the US PMIs. But, this month, growth in services activity – according to these surveys – is weakening in Europe, contracting in the UK and modest in the US. Meanwhile, businesses indicated slowing employment growth in the Euro area and Japan and job cuts in the UK. 

Brexit (including the unwind of Brexit preparations) and political uncertainty are clearly affecting the UK business surveys.  Temporary as some of that may be, the PMI composite at a 40-month low though won’t be welcome reading for the Bank of England. The probability of a rate cut in Q1 next year has risen.     

Globally, there are more (patchy) signs of bottoming out, but – even putting to one side uncertainty around US-China trade relations – it still feels too early to be talking green shoots. I have my fingers crossed for a significant 2020 upturn in global activity growth, but am comfortable with a sluggish growth/avoiding recession central case for now.

Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations.