Listen: The Decisive | Episode 24 - PMI in Focus: Global Economic Trends and Consumer Sentiment

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Paul Smith  

Hello. Welcome to our latest PMI-based podcast from S&P Global Market Intelligence. I'm Paul Smith, a senior economist at S&P specializing in the production of the Purchasing Managers indices. On today's podcast, I'm joined by 2 other economists. Firstly, hello, and welcome to you, Andrew Harker.

Andrew Harker  

Hi, Paul. Good to be back on the podcast for our final episode of the year. One of the things I'd like to talk about today is our sector PMI offerings, particularly some new country sector data sets that we've started publishing recently, and people hopefully find those interesting.

Paul Smith  

Sounds great, Andrew. And secondly, we're also joined today by Maryam Baluch. Hello to you, Maryam. Good to have you with us. Which topics are you going to be talking to us about today?

Maryam Baluch  

Hi, Paul, thank you for having me. I'm excited to be on the hot seat finally. So I'll be talking about ASEAN manufacturing and some of our latest releases, the broad sector data and CSI, Consumer Sentiment Index.

Paul Smith  

Fantastic. Great. Hopefully, it's not too hot a seat for you, Maryam today. So I thought it would be good just to set a little bit of scene before we get into the latest debate and discussion. I think since our last podcast, which was recorded in September, global economic growth as measured by our JPMorgan composite PMI has been broadly steady compared to that September reading. So growth still a little bit below trend, characterized really at the moment by modest demand growth and a slightly softer labor market. But on the plus side, the inflationary pressures are broadly contained. There's still a little bit of a gap between what I'd call subdued manufacturing performance and private service sector growth in terms of output orders, employment. And that weakness in manufacturing is quite evident in the United States and especially so in the Eurozone where challenges related to energy, competition, trade, structural factors are all tending to weigh on performance at the moment, especially in the region's traditional industrial powerhouse economy of Germany. Now I think that implies perhaps that things are a little bit better, relatively speaking, elsewhere for goods producers around the world. So growth in India continues to power ahead. whilst in China, output is rising modestly and actually at its best pace for 4 months in October. Japan remains in contraction territory, but only just and not to the same extent as the U.S. and Eurozone. Now I think just staying on that kind of Asia theme, as we can look a little bit more towards some of the smaller economies in the region. And Maryam, I'm going to throw this over to you. Maybe you could just give us an overview of what we refer to as the ASEAN region.

Maryam Baluch  

Sure, Paul. So the ASEAN Association of Southeast Asian Nations PMI covers Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam manufacturing. When we look at the headline index, ASEAN has been pretty stable lately and compares favorably against the global manufacturing PMI, which has shown contractions in recent months. The ASEAN manufacturing sector is seeing slight improvement with the PMI holding steady at 50.5 for October. Demand has been on the rise since March, especially during the summer months, allowing manufacturers to boost output. On the prices front, things are easing up. Our PMI shows input and output prices are rising, but at a slower pace than usual and notably down from those post-pandemic highs observed in 2022. It doesn't, therefore, come as a surprise that more ASEAN central banks are following Vietnam's lead in cutting interest rates. However, digging deeper reveals a slight cooling in demand lately. Additionally, the PMI suggests that growth has mainly been driven by domestic demand as trade conditions worsen, which aligns with our global trade picture. In fact, new export orders across the region have been declining for nearly 2.5 years. Moreover, supply chains are still stretched, though not as badly as during the pandemic, but resulting in this reliance on stockpiles to meet demand. Also, when we look at the country breakdown, the picture is quite varied. So Myanmar and Malaysia have been holding back the ASEAN manufacturing sector, but Indonesia also falling into this underperformer category. On the flip side, we have Singapore and the Philippines as strong contributors who in recent months have at times been accompanied by Thailand and Vietnam. And I'm sure, Andrew, you'd like to jump in and share some insights on what's happening in Vietnam lately.

Andrew Harker  

Yes. Thanks, Maryam. Yes, I did think it would be good just to update people on what's been happening in the Vietnamese manufacturing sector, given that they suffered the impact of the typhoon back in September. Just to recap, Typhoon Yagi made landfall in Vietnam on September 7, I think it was, caused widespread disruption, a lot of damage to factories, a lot of flooding, very sadly. It was the largest storm to hit Asia this year so far, very sadly led to hundreds of people dying and billions of dollars' worth of damage as well. We were able to see in our PMI data for September, the impact that the typhoon had on the manufacturing sector. So we saw sharp reductions in both output and new orders as the damage to factories and the extensive flooding really hampered operations and limited the ability of firms to produce goods. Similarly, there was issues with transportation. So supplies delivery times lengthened sharply, again, often linked to the flooding and just the difficulties of moving goods around. Those issues getting hold of inputs meant that stocks of purchases actually fell at the second sharpest rate on record since we've been doing the Vietnamese survey since 2011. So the only time that we've actually seen a worse month for stocks of purchases was at the start of the COVID-19 pandemic when much of the world was in lockdown. So really quite a severe impact in September, particularly in that part of the country in the north where the typhoon hit. But we look forward to October, we've got October data now for Vietnam as well. We can see that the recovery has got underway. So we've got renewed increases in output and new orders. Now there's still some lingering impacts from the typhoon, particularly with regards to supplies delivery times, transportation is still affected. So the rates of growth that we saw in October, still some way off what we saw prior to September when the sector has been growing really strongly. But hopefully, now we can see a recovery getting underway, and that will start to build in the months ahead.

Paul Smith  

Thanks, Andrew, for that extensive overview of Vietnamese manufacturing and you, Maryam as well for that great overview of developments in the ASEAN region in terms of its manufacturing sector. Now I wanted to highlight some data sets this month, which listeners may not be quite as aware of compared to maybe our more traditional, shall we say, manufacturing and private service sector splits. That's something that we refer to as our broad sector data. I'm going to come straight back to you, Andrew, if that's okay. And maybe you could just give us a quick outline and overview of what those data sets entail.

Andrew Harker  

Yes, absolutely. So maybe it's good to just go back and look at what we've traditionally always published for sector data-wise. So Normally, people might be aware of our detailed sector data, which is available at the global level and for Europe and Asia. So that's where we really drill down on the responses that we get from panelists each month and split those data sets out into really quite detailed sectors. We haven't really done that too much at the country level up until now. We've done sector data for the U.S., but now we're expanding this out to 9 other countries across the Europe and APAC regions as well. So we're going to have 10 countries for which we've got broad sector data. So not quite as detailed as you can get at the regional level, but we're talking about sectors like basic materials, consumer goods and services, financials, industrials, technology. We'll go through a bit of what these sectors entail over the course of this discussion. But it's important to note that those new data sets at the country level are going to be available at the same time as the respective services and composite data for those countries. So you're going to get a real sort of good insights straight away in terms of what's driving trends at the national level within the sectors. And so those data sets are available now if people want to subscribe to them. So yes, it's worth having a look, I think.

Paul Smith  

You probably guess what my next question is going to be, Andrew. You've already hinted there a little bit. Could you maybe give us a little idea of what the latest data is showing perhaps as we started earlier on today, starting globally and then kind of funneling down, if you like, into some of the nations or regions that we've got within that data set?

Andrew Harker  

Yes, sure, I can do that. Yes, we go back to the global data and look at some of these broad sectors. The one that's growing best at the moment globally is financials. We're talking about banks, insurance companies, real estate firms, amongst other things. And so that sector has been performing pretty well. October is the fastest of those broad categories. Now if you look at the country level, where the growth has been coming from, Spain is leading the way there, saw very strong growth in October and was the best for almost 2 years, but also the U.S. and Italy performing well in terms of financials. So a good spread there. But then if we look at the other end of the scale, it's the basic materials sector, which has been struggling really to generate any growth for some time now and continuing into October. When we talk about basic materials, we're looking at metals producers, chemicals, wood producers, those sorts of industries. Again, we can -- now that we've got this new data, we can drill into which countries are driving those trends, we can see that output in basic materials falling pretty sharply in France, also the U.S., so we've seen the sharpest decline in basic materials production since February 2023 in October. Germany, Italy also struggling as well in that respect. You notice there, I've mentioned some of those countries like the U.S. and Italy, both in terms of the best performers in financials and the worst performance in basic materials. And really this goes to show that dichotomy that you were talking about at the start of the episode call between manufacturing services is really well illustrated by this sector data. I think you can see the financials really representing the service sector powering ahead, whereas basic materials on that more manufacturing side struggling.

Paul Smith  

Yes, absolutely, Andrew. Maryam, maybe I can bring you back into the conversation here. And I'm quite interested in what's going on at the moment in more consumption facing industries and sectors given that's such a key driver of modern economic growth. Andrew discussed there, we cover consumer goods, consumer services. How are these 2 sectors performing, Maryam?

Maryam Baluch  

So consumer goods covers consumer electronics and automobiles, for example, and consumer services encompasses media and tourism and recreation. So here, we're looking at marketing companies, restaurants and et cetera. And both the sectors saw modest growth worldwide in October. However, these sectors are not the main engines of global growth, showing more moderate expansion rates and generally landing near the bottom of the rankings of the 7 monitored broad categories, suggesting the squeeze on household budgets and generally a cautious spending environment. Regionally, consumer goods have been a significant drag in the Eurozone, largely due to the struggles in the automotive sector, but this wasn't so much the case for Asia or the U.S. In fact, when we look at all 3 Eurozone countries, Germany, Italy and France saw the consumer goods sector take a hit. Germany was hit the hardest, continuing a decline that started in the second half of last year with the recent rates of contraction being among the most marked since the pandemic months. This downturn can be linked to struggles across the German car manufacturing sector. A rapid shift to electric vehicles, which was hit by this sudden halt in the government subsidy program plus facing tougher competition from other countries meant that output has been scaled back notably. On top of that, the outlook for the next 12 months looks gloomy as highlighted by a PMI Future Output Index, which posted below the neutral 50 mark.

Paul Smith  

That's great, Maryam. I think talking to some structural challenges that we spoke about when we're talking about the Eurozone economy at the start of the podcast. I think this discussion on consumption is quite a nice link into our final topic really for today. It's a little bit more of a focus on consumers and current behavior, something that we predominantly, of course, with our PMIs are focusing on businesses, it would be great maybe to look at something a little bit more in the consumer space. Unfortunately, we're a little bit limited in what we can do here, but we do have a survey of households in the U.K., which we can dig into. And coming back to you again, Maryam here, maybe you could just give us a little bit of an overview of what we call our consumer sentiment index for the U.K., maybe give us an idea of some of the data history, how often we're releasing that data? And what kind of questions and indices that we're actually collecting data for?

Maryam Baluch  

Sure, Paul. So the CSI, the Consumer Sentiment Index is our sole household survey from the PMI team, slightly different from our typical business surveys as it focuses on consumer confidence across the U.K. We collect data monthly involving a panel of 1,500 U.K. households and have been doing so for the last 15 years. But like the PMI, this is still a diffusion index. So 50 signals no change on the month prior and readings above 50 signals an increase or improvement, readings below 50 signals a decrease or deterioration. The CSI tracks consumer financial well-being, labor market conditions, household spending, saving and debt. We gather these insights by asking households a series of questions. A few examples include their perceptions on current and future finances, changes to job security, income, savings, plans for major purchases.

Paul Smith  

So a real holistic overview of how consumers are behaving and feeling at the moment. Now the survey and the release of the CSI in October, of course, occurred before the U.K. government budget, which was at the end of the month. I'd be intrigued to know what the data was saying in terms of household confidence maybe in the few months since the election until just before that budget occurred in late October.

Maryam Baluch  

Households have really been feeling the pinch post COVID, especially with the cost of living crisis weighing heavily on finances. Cash flows and savings have taken a hit and many are putting off big purchases. But there was a silver lining recently, particularly after the election in July when the CSI hit its highest point in over 3 years. Since then, confidence has retreated slightly in the lead up to the autumn budget, but the index is still close to July levels. A key driver of confidence has been the labor market, which has been a shoulder to U.K. households since the second half of 2023. All the subindices, job security, income from employment, workplace activity have shown solid improvements, helping to ease some of the pressures on households.

Paul Smith  

And I guess I'm not going to ask you to get your crystal ball out or anything like that, Maryam, but when is the next set of data available given that's going to be that first release since the budget happened?

Maryam Baluch  

Our upcoming release is scheduled for Monday, 18 November. It will provide some of the first insights into U.K. households following the budget. So definitely one to look out for with new government policies set to launch next spring, creating a dynamic landscape, particularly regarding the labor market, it will be interesting to see how households have reacted. What's more interesting and exciting is the range of cohorts this data offers. It's a rich data set with a lot of history that allows for a deep dive. So we can break these insights by age, sector, like public versus private, homeowner status and much more.

Paul Smith  

Yes, that's definitely something to look out for and really great timing given when this podcast is likely to go actually only be a couple of days away or of course, if people are listening to on the Monday morning commute or in the office on a Monday morning, that data hopefully will actually already be readily available. So please go search out the CSI on our website, if you can. Of course, something else worth looking out for in the coming days will be our flash PMIs, which will help us get a sense of the impact of the U.S. presidential elections on business economic performance. That was something that we, of course, spoke at length on our previous podcast in September and the potential impacts from the election on economic data. So date for the diary for Flash data is November 22, with numbers out for Australia, Japan, India, France, Germany, the wider Eurozone, the U.K. and the U.S. So that's lots to look forward to in the coming days. But for today, all that's left for me to say is thanks to Maryam and Andrew for their contributions, and we look forward to discussing some more PMI-related developments and topics in 2025.

Kristen Hallam  

Thank you for listening to The Decisive podcast from S&P Global.