The Decisive | Season 3 Ep.20 - PMI in Focus: Tariff Impact in Asia, UK Labor Market Trends

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Paul Smith: Hello, and welcome to the latest episode of The Decisive Podcast from S&P Global Market Intelligence. I'm Paul Smith, a senior economist at S&P, and today I'm going to be guiding you through some of the latest findings from our Purchasing Managers’ Indices. And to help me do that, I'm joined today by two fellow economists.

So firstly, we have Andrew Harker, our regular contributor to the PMI based podcast. So good afternoon to you, Andrew.

Andrew Harker: Hi there Paul, great to be back doing another podcast this month. Still a lot going on in the global economy, particularly all around tariff announcements, et cetera. So I think similar theme to what we spoke about last time on the previous episode, really looking at the impact of tariffs on, on economies around the world, but this time with more of a focus on Asia.

Paul Smith: Sounds great. Thank you very much, Andrew. And secondly, we're also joined today by Annabel Fiddes. Good afternoon to you as well, Annabel.

Annabel Fiddes: Hi Paul and Andrew. Thanks very much for having me on today. Looking forward to diving into our data around Asia, but also taking a look, , at something a bit different. So our report on job survey, we compile to look at the latest UK labor market trends.

Paul Smith: Thank you very much, Annabel. Just before we jump into all of that, I think it'd probably be useful to do a little bit of scene setting, especially as it's been nearly two months since we last discussed our PMI data on the Decisive podcast. So now, last time, back in March, we flagged the considerable uncertainty that was buffeting the global economy, especially in relation to trade due to, at the time, the possible escalation of tariffs on goods and services in particular, those imported into the United States.

Now, I think it's fair to say the situation related to tariff policies has been and remains fairly fluid at the time of recording. We've had news of a US-UK trade deal and also a notable reduction in tariffs between the US and China. Given the unpredictable nature of how these policies have evolved, I think what we want to do today is just provide an update on what we've seen in our high frequency PMI data and, how the implementation of some tariffs and probably most importantly, the ongoing uncertainty, how that's impacted decision making, sentiment, and changes ultimately in real macroeconomic variables.

All of course, measured through the lens of the PMI data. So I think just from a kind of global manufacturing perspective, what we've seen in April is we've seen a dwindling, really, of global goods trade.  Our favorite proxy of this is, of course, for those who've been regularly listening to our podcast is manufacturing new export orders data, which at the global level, it takes all our survey data we collect from our numerous manufacturing surveys around the world. And in April that showed our biggest month on month reduction in global exports, from a manufacturing sense since August 2023. That meant overall order books, so that’s including domestic and export trade, they were also down. And that's inevitably impacted on, on output growth, which I think can be described as as marginal at best. And looking forward a little bit confidence in the outlook has slumped to a two and a half year low. I think at the top of the podcast, we kind of said we're going to focus a little bit more on, on Asia today, but I think just to provide that link back to what we were discussing in March, we were looking primarily how territory impacting North America.

I would stress listeners can go back of course and listen to that March episode and see what we were talking about then. But I think just to note, the data have worsened significantly in Canada over the last couple of months. There's lots of uncertainty around tariffs, they simply just continue to weigh on businesses, both in the sense of sales and market activity and just general business activity as well.

So, you know, outside of the pandemic, these contractions are the worst we've seen in, in all the years we've been collecting survey data. I'll just jump quickly across the board as well into the United States. US growth is its lowest in around a year and a half. And again, that's really attributed to the knock in confidence and uncertainty caused by these tariffs. Export traders slump noticeably, although there is some support to be found for kind of internal, you know, domestic demand.  Now I think that's pretty common across many of industrialized nations that we cover with the PMI. But I think it's probably best for our experts here today, Annabel and Andrew, maybe to help us delve a little bit deeper and hear what's going on from an Asian perspective.

Annabel Fiddes: Thanks, Paul. And yeah, when we're looking through the lens of the PMI surveys, we did see that manufacturing exports across Asia did increase over the first quarter of this year. So in fact, our surveys did show that the best export performance in about four years. So four years ago was a time when demand for goods was boosted by COVID-19 lockdowns, and working from home mandates. And in our surveys when we are looking at what economies benefited from this front loading over the first quarter, , it's quite notable. We saw strong export performances across Taiwan, South Korea, the Philippines, and also mainland China.

Paul Smith: That's interesting because that's pretty consistent, when we're doing a little backward looking here, aren't we? That's consistent with the front-loading kind of story that we saw maybe in US GDP report for the first quarter, which kind of showed a big rise in imports, which means kind of by national accounting definitions, a widening of the US trade deficit and a big drag on that Q1 GDP number.

It just really shows the value of our high kind frequency data here, showcasing some of those trends ahead. Of the more backwards looking official data sources. But of course, we're knee deep into the second quarter of the year already. I think it'd be great maybe to get a little bit of an update, Annabel, and then PMI results for April Data.

Annabel Fiddes: So for April, we saw the effects of the shifting US trade policy, so the improvement in manufacturing, export sales. We've seen across Asia did not carry through into April. So factories across the region instead reported a drop in international demand, and one that was the most pronounced in nearly two years. So particular points of interest have been economies that have seen renewed falls in exports in April. So that was mainland China. That was South Korea, Taiwan, Indonesia, as well as Pakistan.

Andrew Harker: That's really interesting to hear about that reversal there, Annabel? I think it's worth actually giving some information to people on how our survey periods work. Just to provide a bit of background so people know actually when the companies were filling in these surveys and where the data comes from. So we conduct our surveys during the middle of each month, companies generally have about, I'll say, on average, about 10 days to fill in the questionnaires. When they're answering those surveys, we ask them to compare the middle of the current month with the middle of the previous month. So for example, in April, we'd be asking all our questions -- for example, has your output gone up, down, or stayed the same relative to mid-March.

And actually if you look at when our surveys opened in April, it was actually on the ninth of the month, which was the day, the 90-day pause on tariffs was announced. So companies would've been aware of that pause when they were answering the surveys in April. Just to pick Vietnam as an example and see what difference that actually makes. Survey responses would've been answering the questionnaires on the basis of tariffs of 10% rather than 46%. So quite a big difference there. But even so in Vietnam, we saw the sharpest decline in manufacturing new export orders since mid 2023. So still showing quite a big impact really from those announcements.

Annabel Fiddes: So in Taiwan, which plays a crucial role in the supply of goods such as computing equipment and semiconductors, which are the building blocks of most consumer electronics, we saw a fresh decline in export sales. That was the quickest in over a year. Again, this renewed drop was often linked to the impact of the shift in US trade policy and resulting uncertainty around future tariffs. Then when we turned to look at South Korea. Which is also a very important bellwether of global trade. We saw goods exports decline for the first time in six months, and at the fastest rate since June 2023. So firms here were also attributing the downturn to the impact of the recent US tariff announcements. And that impacts on demand. So with these weaker demand trends, we're also seeing this feed through to output. In Taiwan there was a fresh fall in factory production during April, with the rate of contraction the quickest in over a year. Then in South Korea again, we saw manufacturing output was also down, and it was in fact down for the second month in a row and at the quickest rate since June 2023. And again, here we're hearing back from panel members that this was due to the impact of US tariffs and lower sales and it’s leading these firms to cut back their production levels.

Andrew Harker: Yeah, it's interesting looking at the output data because it was a bit more mixed, and varied than the picture for new export orders. Perhaps some domestic demand resilience coming through. If you look at the Asia manufacturing output as a whole was actually still rising in April we had still strong growth in India.

Also an expansion in mainland China and even in Japan where output decreased the rate of contraction was the slowest we've seen in 2025 so far. So some positives still in terms of output, but as you mentioned, Annabel, particularly sharp falls in economies like South Korea, Taiwan, also Indonesia and Vietnam saw marked declines. A bit of a mixed picture there in terms of output.

Annabel Fiddes: I think it's also really interesting to see in the latest surveys that all of this uncertainty and shifting trade policy is impacting confidence. In our surveys, we have what's called the Future Output Expectations Index, and it's the only index actually based purely on sentiment. So we're asking companies about how upbeat they are regarding output for the year ahead.

So on this measure, we have seen business confidence weaken across the majority of economies we monitor within Asia. So uncertainty is really dominating when businesses talk about their concerns for the year ahead, and you know, this uncertainty is causing consumers and companies like to adopt a much more cautious approach to spending and investment. So when we look across Asia as a whole, we saw optimism was the second lowest since the data collection on business confidence began in April, 2012 if we exclude the pandemic period.

Andrew Harker: Yeah. I think when it comes to the business confidence and that drop, it is not just actually a phenomenon we saw in Asia, it was more of a global thing. Paul mentioned, I think at the top of the show, how global manufacturing confidence was down to a two and a half year low in April. And actually, if we look at all the economies we cover for April, I think it's getting close to 50 now across the world, actually around three quarters of those actually saw a drop in sentiment during April. So really quite widespread, not just within Asia, but globally as well.

Annabel Fiddes: Heading back to Taiwan and South Korea again, in respects to confidence. So in Taiwan we saw manufacturers expressed renewed pessimism towards the outlook, which is really interesting. So firms are actually anticipating outright cuts to output over the next year , and expectations were the most downbeat overall since the start of 2023. In South Korea, we've also seen business confidence drop back into pessimistic territory. So again, firms anticipating reductions in output. And in fact, if we exclude the pandemic, expectations in South Korea were the weakest since the series began 13 years ago. Again, firms are citing concerns about the potential impact of US tariffs and a general deterioration in global economic activity.

Andrew Harker: Yeah, and it's actually really quite rare, isn't it, for companies to predict reductions in output. That future output index very rarely goes below the 50 no change mark. So quite stark reading, quite notable that both Taiwan and South Korea have seen that in April. Just one more point I wanted to make on the sentiment side of things.

I was looking at our Asia sector PMI press release. So this is where we get all the responses for across the whole of the region and sort of split them up into more detailed sectors so that people can see what is driving the overall trends. And so there are 18 in total, 18 detailed sectors at the Asia level.

And actually all of those saw business confidence drop from March to April. And that's only the second time that's ever happened. So just again, highlighting that the widespread nature of the reduction in sentiment that we saw in April.

Paul Smith: Thank you very much Annabel and Andrew for that really insightful conversation and into the development across the region in April. And, I just think it just shows how uncertainty really does have real impacts on economies. It's largely just by creating general hesitancy and nervousness amongst businesses and households. You know, when, maybe when committing to new contracts or investment decisions and spending decisions, et cetera. So, I'd just like to switch topics now, just for the last few minutes of the podcast largely because we're quite lucky today, I think, to have Annabel with us.

Annabel, on top of these Asian economies that she's covered so well for us today, she also looks after an important survey in the UK, something called the KPMG Rec report on jobs, and I think it would just be good, Annabel, but we could spend a few minutes just talking about some of the developments in this survey. It showcases several important aspects of the value that we get from high frequency data.

So maybe you could just kick us off here with a little overview of what the Report on Jobs is and how it works.

Annabel Fiddes: Yeah, so for a bit of background, the report on jobs is one of our oldest surveys having started back in October 1997. The UK Report on Jobs is a monthly survey of over 400 recruitment consultancies across the UK, and they provide incredibly useful information about labor market conditions for the survey itself, it’s tracking things like staff hiring, candidate availability, vacancies, and pay, and this is split by both permanent and temporary job market.

Paul Smith: I think of course, what's super interesting at the moment in the UK is that on the one hand, we've got an economy that's being buffeted like we've kind of discussed here today by tariffs and uncertainty, et cetera. But there's also been changes in government tax policy stemming back really to last October's government budget, and that's principally related to the cost to firms of employing workers. I wonder whether your survey, Annabel, can help us tease out some of the impacts that maybe we've seen of that change in tax policy has had on the labor market in the UK.

Annabel Fiddes: Yeah, there have been recent changes to payroll costs. So these are costs paid by employers to hire staff, the amount of national insurance paid by employers. So these are payments for social security. They went up in April while the national minimum wage rates have also increased during April. So as a result of this, recruiters are telling us that businesses reacted to this by freezing or canceling hiring decisions. In the survey, this showed up through steep reductions in overall vacancies, the number of people that have been placed into permanent roles and the lower usage of temporary workers. So job losses have also been reported by recruiters, as firms have been looking at ways to cut back on costs.

Paul Smith: I think that tallies very well with our UK PMI surveys as well in terms of reduced job numbers. I think the PMI data have shown something like seven successive monthly reductions in employment numbers, which is, you know, the worst run since the financial crisis. Again, excluding the pandemic period.

I guess what that leads to right, is an increase in the number of job seekers and I guess what every economist determined the supply of labor, if you like.

Annabel Fiddes: Yeah, that's exactly what we're seeing, Paul. So redundancies and the drop in hiring activity have driven sharp increases in candidate availability. In recent months, and in fact, if we exclude the pandemic and the global financial crisis, which are two big economic shocks, the current period of rising candidate numbers is the most pronounced since the survey began back in 1997. So when we look at this combination of reduced demand for workers, at the same time sharply rising supply, this has meant that pay pressures have cooled, notably over the past year. So the survey is showing that increases in pay for both permanent and temporary staff arising at rates that are comfortably below their long run averages.

This suggests that pay growth has softened and something that it's likely to be picked up in the official data in the months ahead.

Paul Smith: I think the timing for that's quite, quite useful. So I think we've just, we had today when we're recording this podcast, some official labor market data, which I think showed a slowdown in average wage or earnings growth. That's a really important development, right? This slower wage growth story because how it might impact monetary policy.

Right. I think last week the Bank of England cut interest rates. Do you think this data or you know, these developments had any bearing potentially on that, on that kind of decision?

Annabel Fiddes: We know the Bank's Monetary Policy Committee do use this survey to build a picture of how labor market conditions are faring. So it's there for one of the number of data sets alongside the PMI that help shape their views on the right path for interest rates. So in this case, the report on jobs and the PMI data have both been signaling weaker economic and hiring conditions. So this has supported a move to cut interest rates this month.

Paul Smith: Yeah, I think once again hopefully it's just helping to highlight the value of this type of timely high frequency data to policy makers, be it the report on jobs in this instance, or more broadly in a global sense that the PMI data, you know, during periods that we're currently experiencing lots of uncertainty is really useful to have this type of data just to help understand economic development quicker than, you know, most of the official data that is provided to us as economists. And of course, you know, those in charge of making these kind of policy decisions. Just thinking about global trade, you know, the coming few weeks are going to be extremely significant.

I think as we come into what our colleagues in supply chain research have noted is a peak season now for manufacturing decisions, container shipping rates, seaborne, inbound shipments data to the US and of course the PMI. These are all information sources that we have available for us, at S&P Global Market Intelligence, and I would really stress to listeners, you know, to keep a close eye on these sources of information that become available in the coming days and weeks. So I think with all that in mind, I think all that's left for me today is to say thanks to both Annabel and Andrew for their insightful contributions as always, and we look forward to discussing more PMI Data Insights on the Decisive podcast later in the year.