Previous Research ISM Services PMI Update: June 2023
The surveys of Purchasing Managers’ Index (PMI) provide valuable insights into the economic conditions of countries, making them instrumental in policy and investment decision-making. A helpful approach to gain a comprehensive view of the global economic landscape is by plotting the Manufacturing PMI versus the Services PMI for various nations. This visual representation allows for easy identification of economies or blocs that are performing well or facing challenges.
A glance at the current world picture portrayed by the plot reveals that Western economies are encountering difficulties, while China, India, and Russia are displaying relatively robust performance. Notably, India stands out as a strong performer due to favorable macro conditions, largely influenced by the availability of affordable Russian crude, which has made India the primary beneficiary of the Russian war. If a global downturn is imminent, India may serve as a safe haven for investors.
An intriguing observation from this plot is the existence of an empty quadrant characterized by high Manufacturing PMI and low Services PMI. This discrepancy arises because the Services PMI typically lags behind the Manufacturing PMI. This insight was previously mentioned in our publication on the US Services PMI and sparked extensive debate. The current plot validates the theory, underscoring the time lag between manufacturing and services sectors. Consequently, if the Manufacturing PMI weakens, it is highly likely that the Services PMI will follow suit, particularly in Western economies.
The global average Manufacturing PMI currently stands at 49.6, indicating a contractionary phase. Several emerging markets and Japan boast PMIs above the world average, while the majority of countries sit below this average threshold. It is worth considering that if the de-dollarization efforts are to yield positive outcomes, the present moment would be opportune, as the BRICS+ bloc appears stronger than the Western economies. It would be interesting to see how it unfolds.
Can US Skip the Recession?
The most recent labor market data paints a concerning picture of overall weakness. Typically, the effects of changes in interest rates take some time to ripple through the economy. Historically, this lag has been around 18 months. Interestingly, this pattern held true as, precisely 18 months after the initial rate hike in March 2022, we are now witnessing the visible impact this month. The Federal Reserve consistently raised rates throughout 2022, suggesting that the consequences of these consecutive hikes will continue to materialize as the year unfolds.
SP500 & Inflation Update: Aug 2023
Airtham Macro Research: The July headline CPI release followed predictions of a slight increase, yet the actual magnitude was less significant than anticipated. This outcome sparked optimism within the market, leading to a surge in activity and speculation of a potential pause in rate hikes. However, this optimistic rally was short-lived as market participants quickly adjusted their expectations. The weaker-than-expected inflation reading meant a potential decline in economic demand. This perspective gains support from jobless claims data released a few days back, that showed claims rising to a 1.5-year high. Consequently, there's now a debate over whether further inflation reduction is beneficial or detrimental to the markets.
What’s Happening to US Tax Receipts?
One of the most crucial indicators for gauging the health of a country lies in its government tax receipts. When tax receipts rise in tandem with economic growth, it signals a thriving nation. Conversely, economic downturns often witness an accompanying decline in tax receipts. However, what's truly concerning is when tax receipts decline despite a healthy and expanding economy.