The Decisive | Season 5 Ep.10 - PMI in Focus: Turning Timely Economic Signals Into Strategy

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Kristen Hallam:

You're listening to The Decisive Podcast, insights and analysis to empower confident decision-making.

 

Paul Smith:

Hello, welcome to the latest episode of The Decisive Podcast from S&P Global Market Intelligence. I'm Paul Smith, an economics director at S&P Global, and today I'll be looking into recent trends in our closely watched Purchasing Managers' Indices. To help me in that quest, I have two fellow economists joining me today. So firstly, a very warm welcome to Sian Jones, who is joining us, and this is somewhat incredibly, for the first time since our debut episode, when we, as in the PMI team, were actually doing The Decisive Podcast in 2021. So yes, hello, welcome, Sian.

 

Sian Jones:

Thank you, Paul. Yes, so today I will be talking about using PMI and Comparative Industry Service data to better support corporate client goals.

 

Paul Smith:

Excellent. Look forward to getting stuck into that later on in the episode. And secondly, and I guess this won't be a surprise to regular listeners, also joining our party today is Andrew Harker.

 

Andrew Harker:

Thanks, Paul. Yeah, I seem to keep coming back, don't I? Thanks for having me on. As always, a lot going on in the global economy. Obviously a lot of focus on the war in the Middle East at the moment. So I think it'd be good to speak about how the PMIs will be able to help illustrate the impacts of current events on businesses around the world in the months ahead.

 

Paul Smith:

Yeah, absolutely. I'm glad you mentioned that because I think before we dive in into the latest topics today, I do think it's quite important to maybe note that all the data that we're going to discuss today, they were all collected before the latest conflict in the Middle East actually began. And I do think that's quite crucial context because of course, it's hard to get away from the fact that conflict is having a large impact, particularly on energy production and supply, and has clear implications for changing previous expected paths of inflation and the broader global economic outlook in 2026. And I think in the weeks ahead, this is purely from the perspective of the global economy, which is, of course, what we're here to discuss today. PMI data, with its broad global coverage, will be key to tracking how those effects unfold. Of course, with the caveat of that it's highly uncertain how long that conflict will last for, and that will be ultimately crucial for kind of ascertaining and working out what exactly the impact will be. Nonetheless, I do think it's still relevant and useful to look at where the global economy maybe stood in February before those events actually unfolded.

And to be honest, the picture was actually fairly positive. Our global composite PMI, which is sponsored by JPMorgan, that actually rose in February to a 21-month high of 53.3. Being above that crucial 50 no-change mark, that indicates continued expansion of global economic output. And just remember, noting, in our world, any reading above 50 signals growth, anything below 50 signals contraction. That index number and therefore growth was broadly in line with its long-run trend and was supported by a similar increase in the demand for goods and services around the world. Business confidence was also improving, and even international trade, which was of course impacted heavily last year by various tariffs, etc., around the world, that was also beginning to recover. New export business, which is a kind of a proxy for global trade, actually overall rose for the first time in nearly a year.

 

Andrew Harker:

Yeah, it was a decent month actually, February, wasn't it? I always think it's worth digging down below that global data to see what's driving those trends. And looking at it, the Japan data has been quite good in recent months. Actually, in February, output rose at the fastest pace in nearly 3 years in Japan. And the ASEAN manufacturing PMI hit a record high in February, and there was stronger growth in mainland China as well. So that APAC region had quite a good month in February. And we also saw a sharper expansion in the eurozone, but in the US, the rate of growth softened a bit. So that was down to a 10-month low, some sort of slowdown there in the US.

Also, I think worth touching on our business outlook data, which were released earlier in the week. Here again, reasonably positive picture. So global sentiment around business activity was up slightly from the picture late last year. But less positive was the outlook for employment. There, we continue to see firms quite reluctant really to commit to plans around hiring and sentiment around the lowest we've seen since we started publishing that data back in 2010. Again, digging down from the global level, I just wanted to pick up the performance of the eurozone because business confidence there actually hit a 4-year high in the latest outlook survey. And the improvement in sentiment was actually particularly marked in the manufacturing sector. So some good news there as well.

 

Sian Jones:

It's interesting on the manufacturing side, some of our Greek panelists responding to our Greek outlook survey highlighted that any escalation in geopolitical tensions in the Middle East would likely hamper output levels over the coming 12 months. Being on the periphery of the region, obviously supply chain concerns are key there, and our panelists also mentioned that, yeah, any escalation intensions would have significant impact on supply chains and raw material prices. In fact, some of them also mentioned they'd been doing research into import substitution in a bid to better secure inputs. And any disruption or potential disruption to supply chains will have been front of their minds following extensive challenges that they faced during 2024 when transportation and logistics routes were diverted away from the Red Sea. So in our Greek manufacturing PMI data, lead times for inputs as a result of that disruption worsened throughout 2024, and actually supply performance only really began to move towards stabilization in the first half of 2025. As a result of that, we saw input costs rise markedly, with PMI data signaling some of the sharpest rates of input price inflation on record in the Greek manufacturing sector in 2024 and into 2025.

 

Andrew Harker:

Yeah, it's interesting you mentioned about that Red Sea disruption, Sian. I was looking back, we actually did an episode of The Decisive Podcast in March 2024 where we spoke about those impacts and how they'd come through in the data, and Greece was a part of that. I think that's, it was useful to listen back to that actually. Obviously the situation's slightly different now. We're talking this time about the Strait of Hormuz, which is that critical choke point for oil and LNG out of the Gulf. But we can still look back, I think, and think about some of the indicators in the PMI surveys that are going to be useful for people to look at. One thing that really struck me listening back to what we spoke about when we were referencing the Red Sea was just how varied the impacts were across different economies. So as you mentioned, Greece was quite badly affected by that disruption, and a number of other economies were as well, but then others much less.

So I think it really highlights the importance of the PMI coverage that we've got. We cover more than 40 countries around the world, all different parts of the world, monitored and we're really going to be able to dig down in the months ahead and see which particular economies are most affected by any disruption. Just looking at some of the indicators that will be quite useful to look at, I think our comment trackers are good in these situations because they dig into the details of what companies are telling us. We've got a number of categories covered there which are potentially going to be useful, those related to shipping delays, costs linked to shipping, and probably one that's going to be really useful is the one tracking price increases linked to energy costs. That's probably going to be one to look out for. Other datasets we've got include trackers of price increases and supply shortages for a range of commodities. Oil's included in that, so I think that could be quite an interesting index to look out for. And then also just going back to sort of the standard PMI subindices, which always provide a lot of information.

So things like supplies delivery times, stocks of purchases. And I think the main one that's going to be of key interest is input costs as we look to see how companies' cost burdens around the world are impacted by the war in the Middle East and any disruption around the Strait of Hormuz.

 

Paul Smith:

Yeah, I'm glad you mentioned input prices there because I think that's where the PMI data are going to be especially useful, at least in the near term, in understanding how that conflict in the Middle East feeds through to producer and consumer price inflation. And I also think it's interesting that you talk about quite different economies because I do feel that some nations in Europe especially, which do tend to rely on energy imports, are especially vulnerable to changes in production and ultimately global market prices for energy, especially for natural gas. And then you kind of take that on and you think if that feeds through and if inflation begins to creep higher, say, I think the UK is a really good example here, will it lead to a potential pause in the easing cycle that we've seen in the UK around interest rates? Our team had, prior to this conflict started, we're seeing the Bank of England as delivering 2 or 3 rate cuts in 2026. Similarly, in the eurozone, the ECB, which has been broadly expected to keep rates on hold for the rest of 2026, because, you know, the potential for inflation to start to creep higher, does that lead to some upside risks to interest rates in the eurozone? So I think for me, I guess at times like this, when you start to see economic shocks materializing and having helped to produce the PMIs for, I was going to say nearly 25 years now, but that's not quite true, nearly 24. I don't want to add an extra year on necessarily, but it's been a fair amount of time to say the least. I think it kind of reminds you, doesn't it, how that monthly PMI survey data really do provide timely and reliable signals to policymakers making monetary policy decisions. They really do offer you quick and early insights into whether, say, economic output trends are deteriorating, or maybe we're at the bottom of a recession or something like that, and we've got a turning point back upwards in the economic cycle, or maybe whether price trends are shifting in a way that maybe leads policymakers to potentially change tack from previous policy paths.

 

Sian Jones:

That's really interesting, Paul. I mean, would you say that's how central banks primarily are using PMI data and how they analyze it in relation to official data that's coming through?

 

Paul Smith:

Yeah, I think that's probably about right, Sian. I think the first thing to remember with our surveys, just through the questions we ask companies around output, demand, prices, inventories, all the different variables that we collect data for, they do tend, you know, them questions when they're aggregated up from all the responses that we receive, tend to move very closely with official data equivalent measures from official data sources. And that's in part because PMI numbers are ultimately aggregated in a way that kind of reflects the structure of a country's economy or the particular sector that we're looking at. They do look like the economy in miniature, if you like. And I think then if you take especially our composite data series where we've combined mainly the manufacturing data with the services data and sometimes construction data. We have some questions in them surveys that are common around about output or business activity. And when you combine that information together, what you tend to find is that the time series looks very similar to, say, GDP, national accounts data. And I think in some respects, it can actually provide you with something a little bit more useful than GDP.

It can provide a smoother read maybe on the business cycle and underlying changes in economic activity. Remember GDP data can sometimes be a little bit noisy, dare I say it, you can get some idiosyncratic kind of movements. Remember that data also tends to be released in most countries on a quarterly basis, so it can be quite a long timeframe between from when you've got an economic shock to you get that GDP data print. And sometimes that first GDP data print is based on incomplete information. And maybe the statistics office will also produce some methodological changes down the line. So it leads you as someone reading that data sometimes thinking, I've got to keep all that in mind when I've got that kind of first GDP print. And I think if you're a policymaker, not something I've had the pleasure of doing, but I kind of think about if I was in the shoes of a policymaker and I'm trying to react quickly to events and judge where the economy really stands. I want something that helps me see through some of that noise of GDP numbers, something a little bit more timely, monthly in the case of PMI data, not subject to revision.

Our data are not revised. And something then, of course, that provides reliable signals, as we said. Data are usually correlated quite closely with equivalent official data sources. So I think on that basis, it's quite easy to see why central banks especially make extensive use of our PMI data. I think what's interesting, of course, with PMI data though, is it's not just used by central banks and economists in that kind of traditional economics sense. There are many other ways to use the data outside of that space. And I know that's something that you're very passionate about, Sian. I know you do a lot of work and research in that space as well.

So, I wonder if you could spend a little bit of time telling us a little bit about the work you are doing away from that usual use case that I've just outlined.

 

Sian Jones:

Absolutely. Yes. So, I suppose in this scenario, I'll take us through a bit of a case study. So, if we look at the example of supporting teams who work in corporate businesses, who set sales expectations and identify investment opportunities. These teams are looking to subscribe to up-to-date and frequently updated data to inform their decision-making processes, but also to set organizational and investment timelines. They are often looking for an alternative to official data, mostly for the reasons that you've just mentioned there as well—subject to revision, less frequently available most often, and also because of capacity issues within those teams relating to the time it takes to update and monitor official data releases. And this is where the PMI data comes in, really.

So we can help support in providing the near-term context. If we then combine our capabilities with those of the Comparative Industry Service team, who also sit within Global Risk and Economics, we're able to help identify turning points and opportunities across global and regional sectors. Where the PMI data provides a timely indicator of economic trends covering output, prices, inventory holdings, to name but a few, as have already been mentioned as well, we're then able to combine this expertise with CIS granular sector forecasts, which are released on a quarterly and annual basis. These cover 20-year outlooks across metrics including production, operating profits, sales, and investment expenditure, which helps looking towards that medium to long-term view and brings together what can be quite disjointed timelines. The need for customers to be able to piece together these fragmented time horizons is something that's been identified as a pain point for clients, as well as mitigating against issues in the availability of data, providing greater clarity and turning points, and also identifying wide-ranging solutions relating to demand, output, and supply chain performance. Therefore, by subscribing to the data, this decision-making team have direct access to our sector experts and also the resources that are produced by these teams. And this has helped them to make better informed decisions on end-market conditions, resiliency capabilities, and also helps set expectations amidst uncertainty.

 

Paul Smith:

That's fantastic. Thank you, Sian. Kind of similar ideas, but used from a different kind of angle, which I think is super cool. And I think building on some of the sector specifics, we do have, of course, capabilities of maybe adding in information and forecasts around kind of macroeconomics as well. And we do forecasts for GDP, for unemployment, inflation, interest rates, which I think then you could possibly overlay on top of kind of that sector-specific and really get a good holistic view of how markets could be developing in the near term, in the coming months, and kind of that longer-term horizon as well. Now, just to add, Sian, I know you've also got a short research paper going go live very soon. I think in 2 to 3 weeks is our expected timeframe for that. If people want to learn a little bit more about how the PMI and that comparative industry sector data can be combined, and I think you're going to do that through the lens of a case study for the European chemical sector.

This is a case study, but it could be applied for many of the sectors, of course, as well. So I think to find that paper when it goes live, of course, and I think more generally, if any listeners want to follow our news, our commentary, our insights, I'm hoping we can maybe add a link to our research page alongside the blurb for this podcast episode, but otherwise it's pretty straightforward, I think, to find our pages on spglobal.com. Just go to the website, search for Purchasing Managers Index, and then click on our research and webinars page, and you should find most of our research contributions.

Unfortunately, we kind of hit that 20-minute mark or so, and I think we've covered a fair bit of ground today and hopefully given it a little bit of an insight into the various applications that PMI can be used to monitor trends and developments, specific sectors, all the way up to global macroeconomics. But all that's left for me to say is thanks to both Sian and Andrew for helping us look into all that stuff today. And hopefully we'll be back on The Decisive Podcast later in 2026. Bye for now

 

Kristen Hallam:

Thank you for listening to The Decisive Podcast from S&P Global. Please subscribe and join us for next week's episode. Until then, stay curious and stay informed.