Recession Watch 2022 continues and the latest flash indices from purchasing managers – which will be out Tuesday – were not encouraging.
The US composite PMI came in at 45.5, signaling a slowdown in overall activity, while the euro-zone was as high as 49.2. (Most of you will know that values below 50 indicate contraction.) The UK had a composite value of 50.9.
The 44.1 value of the US services sector has received some attention as it was the third lowest in data until 2009 (after March and April this year). Production, on the other hand, stood at 51.3, still in expansion territory.
The Eurozone and the UK had the opposite distribution, with both regions’ services PMIs moving above 50 and their manufacturing PMIs slowing down by 49.7 and 46, respectively.
Barclays economists wrote in a note on Tuesday that this need not worry much about US growth. They found that service sector PMIs are not as reliable as manufacturing data:
One of our key findings was that the service sector measures generally provided less reliable signals about service sector activity than the manufacturing surveys.
Bad news for Europe and the UK, we suppose.
For those who haven’t closely followed the ins and outs of data provision, this PMI study is the one conducted by IHS Markit since 2009, and that company’s merger with S&P Global was completed early this year. However, we will decline to call the aggregated global figure the S&P Global Global PMI.
The two studies, of course, are conducted differently, which means that investors need to look at where their results differ. Barclays summarized a 2019 review of the PMI methodologies in Tuesday’s note from the economists and found that the S&P measure could be slightly more representative than the Institute for Supply Management’s longer-term survey:
Both are compiled from survey responses from approximately 400 respondents. To form general measures, individual industry responses within each industry are weighted by the industry’s share of total private activity, then adjusted for seasonality as necessary. However, there are a number of important differences. The first is the time span: the ISM survey goes back to 1997, while the S&P Global survey starts in late 2009. build. Responses to the S&P measure are collected in the second half of a given month, while the ISM responses are typically received late in the estimate month. Another subtle, but potentially important difference is the way the survey questions are structured: ISM panelists respond to targeted questions (along the lines of “Was your total order volume higher, the same, or lower than in the previous month?”), while panelists S&P Global asks some more focused questions (such as “Is the level of orders in your unit (in volume terms) higher, the same or lower”) and need a supporting rationale. We also suspect that the Markit survey’s sampling frame is more representative, as it is designed to reflect the composition of each industry, while ISM panelists come from US companies that are likely to skew large.
But apparently none of the data is That useful since the GFC:
The quality of the signals from the S&P and ISM measures has been quite poor in overlapping history as of late 2009. The ISM measure is performing much better across the sample, in part because much of its ‘fit’ comes from recessionary periods that occurred before 2009. Statistically, the benchmark for a contraction in the services sector in the S&P Global measure was actually about 3 points lower than the usual measure of 50.
In other words, Barclays argues that the US is still in a shrinking service sector, but one that isn’t as bad as you might think.
Elsewhere on Wednesday. . .
— Here’s a bird site whistleblower report of a man going through “Mudge” (The Record)
— It sure looks like it someone watched ‘Sorry to Bother You’‘ and decided to try and make it real (SFGate, also see)
— Julian Robertson, founder of Tiger Management, has passed away. The fund’s name, Strachman wrote, was inspired by Robertson’s habit of calling people “Tiger” when they he couldn’t remember their name.” (FT, Bloomberg, Twitter)
— More about Tornado Cash (Daniel Neilson’s share pile)
— JPEG Morgan profile in the Wall Street Journal (WSJ$)
— Larry Summers say Debt relief for student loans is inflationary (Bloomberg $)
— Razzlekhan speaks (Twitter)
— The energy crisis in the UK came despite an early warning from the governmentwhile European energy costs are the equivalent of over $1,000 per barrel of oil (Bloomberg $)
— Meet the designer behind Brad Pitt’s skirt (GQ)