Post-webinar Q&A - Q3 Economies in Flux: Drive Decisions with the Purchasing Managers’ Index™ (PMI™)

These are questions asked during the Q3 PMI™ quarterly webinar. The responses are written by Chief Business Economist Chris Williamson. Access the webinar on-demand here.

1. Are the survey results normalised by the country's historical sentiment level? e.g. maybe some countries are generally more optimistic than other countries (i.e. higher PMI™ score due to optimism rather than a better economic situation)?

The survey questions are phrased as asking respondents to report on the change in any given variable (output, employment, price, etc) compared to the prior month, rather than against any concept such as "normal" or "favourable", with companies asked to refer to actual changes observed. Hence sentiment or views and opinions should not factor into the responses, nor should any historical levels be relevant beyond the base level of the variable in the prior month.

There is, however, one exception for the Future Output Expectations Index, for which companies are asked what they expect their own output to be in one year's time. This is a subjective gauge and as such there are some international variances in long-run averages, which may be attributed to one group of respondents typically having a more optimistic/pessimistic bias. For this Index, alternative international comparisons can easily be made by calculating standard deviations from the mean.

2. How do you ensure that participating companies continue to remain engaged in this methodology?

We do not pay monetary rewards for survey participation, preferring companies to be fully engaged in the process of providing their information in return for analysis of the survey findings. The available reports on the survey findings cover not only the respondent's own country and sector but also their key supply chain and customer markets, including international data. These analyses are widely valued by survey participants for business decision-making and planning. Much effort goes into ensuring these reports contain timely, valuable business insights.

3. Where can I access the historical data of the subindices? Are they available on Eikon, Bloomberg, or MarketView?

All data can be accessed through all main economic data platforms including Bloomberg, Haver, Macrobond, Refinitiv, and S&P Global's proprietary systems. Learn more about how to access via S&P Global Market Intelligence here.

4. Have there been studies on whether the strong labor market might be due to a higher volume of people leaving the workforce due to baby boomers? Is it possible that central banks are tightening credit to slow a high demand problem but the labor market has a supply problem?

A key feature of today's strong labour markets is a tightness in the supply of labor. This is likely to be in part due to the aging of the baby boomer generation, but more recently is thought to also be a function of the pandemic. Not only did the pandemic see a reduction in the workforces of the US and Europe, notably among the older generations, but has resulted in a reduction in labour force participation rates due to high levels of long-term illness. There is some evidence that some of these factors are now reversing, helping to raise the supply of labor, and higher borrowing costs can force more people back into the labour market. Meanwhile, higher interest rates do seem to be having an impact on the demand side, diminishing the hiring of staff, notably in Europe but also in the US. See our special report Developed world jobs growth cools further in August as emerging market hiring accelerates.

5. The Panama Canal has started suffering traffic delays due to a decrease in the water level of the system due to the El Niño weather phenomenon. Do you think this could affect business conditions in the short term?

Any major disruption to shipping through the Panama Canal will be visible through the global PMI suppliers' delivery times index (read more about this index here Understanding … PMI suppliers' delivery times: A widely used indicator of supply delays, capacity constraints, and price pressures). We have also recently issued a podcast on climate change and its impact on PMI data, available to listen to here.

6. I have read that the US ISM PMIs are more impacted by non-US economics than theS&P Global PMI.Is that the case?

There are several differences between the ISM surveys and the PMIs produced by S&P Global in the United States. These include differences in coverage of the economy (notably the ISM services PMI covers all industries excluding manufacturing, hence include government, retail, energy, retail, and construction, whereas the S&P Global survey covers private sector services providers), seasonal adjustment (ISM uses pre-calculated factors whereas the S&P surveys estimate seasonality each month using an in-house methodology), and sample size (we are aware of no data that are published on actual response rates to the ISM surveys whereas the S&P Global surveys are based on data from over 1,000 US companies across the two sectors each month).

Another difference is understood to be that the ISM survey is likely biased toward larger companies, as the survey panel is drawn from the ISM membership which comprises large, often multinational, companies. The responses may therefore reflect how these internationally focused firms are likely to be performing. The S&P Global survey, in contrast, covers small, medium, and large companies (and is not restricted to purchasing executives to allow this broader coverage), and specifically asks these firms to only report on their domestic US operations.

7. Do you see any discrepancies in S&P China PMI compared to NBS and Caixin numbers? Is there a different focus on the size and type of businesses and survey sizes among them?

The S&P Global PMI for China and the Caixin PMI are one and the same: S&P Global compiles the mainland PMI data which Caixin sponsors. The Caixin/S&P Global Manufacturing and services PMI survey are different, however, to the NBS surveys, the latter being compiled by the government's National Bureau of Statistics. Both surveys use a similar methodology, each seeking to accurately replicate the economy in miniature by covering a representative mix of companies by sector, region, and size. Data divergences between the two surveys are therefore generally less likely to be due to one survey being 'biased' towards large or small companies, for example, than simply arising from natural variances in survey findings, as different companies will respond to each survey, as well as differences in weighting or seasonal adjustment processes. In short, we consider it potentially misleading to infer variations in economic performance for parts of the economy from divergences between the surveys.

8. What is SPGI view on US recession?

The US economic forecasting team at S&P Global Market Intelligence is not forecasting a recession (defined as two consecutive quarters of falling real GDP) for the US in the near term. However, although the team has revised up its 2023 forecast, it is warning of a sharp growth slowdown after what they expect to be a strong third quarter. This growth slowdown tallies with the recent signals from the PMI, which likewise hint that the current strength in the GDP data may soon fade.

9. Do you think the recession is incoming at eurozone?

A mild recession later in the year is being anticipated for the eurozone by the forecasting team at S&P Global Market Intelligence. This follows disappointing signals from eurozone PMI survey data which are being steadily confirmed by the lagging official data. Germany, France, and Italy are all expected to fall into recession. However, only very modest falls in eurozone GDP are currently forecast for the third and fourth quarters of 2023, with tepid growth resuming in the new year.

10. How is the African regional PMI index trending?

An African regional PMI is not currently available but data from various economies are released each month, and in August showed varying performance:

Ghana - PMI at 28-month high

Kenya - Business conditions improve for first time since January

Mozambique - PMI falls close to stagnation

South Africa - Business activity expands for first time in a year

Uganda - output growth sustained for thirteenth month but pace weakens

Zambia - output fall for first time in four months

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.