Lacklustre global PMIs stoke stagflationary fears

on Aug 23, 2022
  • PMI data was weak or contracted, indicating that many economies may be entering a stagflationary period.
  • Concerningly, the US Composite PMI contracted severely to 45, a 27-month low.
  • Gov. Powell's speech at Jackson Hole on Friday will provide important clues to the future economic direction.

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Earlier today, S&P Global released much-awaited Purchasing Managers’ Index data for several major economies.

These data summarize whether surveyed purchasing managers believe business activity is expanding, contracting or staying the same. They tend to reflect changes in market conditions – an improvement, deterioration or unchanged.

Readings over 50 suggest that business activity is picking up, i.e., an expansion compared to the previous month, while below 50 indicates a contraction.

Overall, August PMIs have proved softer than in July, and have fallen below consensus expectations in many cases, suggesting the possibility of a significant slowdown in Q3.

Primarily, sustained inflationary pressures, geopolitical stresses and continuing rate hikes have dampened consumer demand leading to a contraction in private sector business activity and accelerating inventory accumulation.

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Manufacturing PMI continued to expand to 54.5 although it slowed from 55.7 in July. Underlying demand was shaken by historic levels of inflation, while the downside may have been limited by workers returning to work after an extended period of strict lockdowns.

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Despite falling commodity prices, manufacturing PMI fell to a 12 – month low.

Services and composite PMI both fell below 50 to 7-month lows, reaching 49.6 and 49.8 from 50.9 and 51.1 in July, respectively.

Continued hikes by the central bank amid a 21-year high in inflation are beginning to curtail consumer demand and further tightening will likely aggravate the slowdown.    


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The composite PMI in Japan registered a disappointing decline to 48.9, against July’s 50.3, and significantly undershot a forecast of 50.6 by Trading Economics. 

The Manufacturing PMI fell to 51.0 in August. Although hinting at a mild increase in business activity, this is a 19-month low for the island country, having registered an expansion of 52.1 in the previous month.

The loss in orders to the private sector was the first such instance in six months signalling potentially dark days ahead for the economy.

Services sector activity contracted for the first time in five months following weak demand, with the PMI Services falling deep into a contraction at 49.2 versus last month’s tepid expansion of 50.3 and a forecast of 50.5.


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The S&P’s composite index fell to 49.8, an 18-month low, moderating from a bullish 51.7 in July 2022.

Flash Services PMI clung to positive territory, just barely, having fallen to 51.0 from 53.2 in last month’s reading.

As in most countries, demand conditions were dragged down due to high inflation and rising interest rates, deterring discretionary spending.

Accordingly, PMI Manufacturing fell from 49.5 to 49, although it outperformed the consensus of 48.2 as reported by Trading Economics.

Expectations that the ECB will continue its normalization policy in September will likely lead to a tough winter for French citizens and a prolonged slowdown.


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The S&P’s composite index fell to 47.6, a 26-month low, easing from 48.1 in July 2022.

This reflects the grave energy problems Berlin has been facing recently, as gas prices surged and new complications emerged with a key pipeline passing through Kazakhstan being damaged overnight.

Both PMI Services and PMI Manufacturing remained in contractionary territory registering 48.2 and 49.8 in August 2022.

Although below 50, the PMI manufacturing was somewhat of a relief for policymakers, improving from 49.3 in the previous month, and well above consensus estimates of 48.2 as reported by Trading Economics. The improvement was primarily driven by the alleviation of supply chain issues in parts of the sector.


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PMI Manufacturing Flash across the Eurozone contracted to a 26-month low while the Composite PMI recorded a 16-month low, following weakness in business activity across major economies such as Germany and France, raising fears of a bloc-wide negative GDP in Q3.

Composite PMI Flash fell to 49.2 from last month’s 49.9. PMI Services saw a near stagnation at 50.2 easing from 51.2 in July and was below the consensus of 49 as reported by Trading Economics.

Manufacturing PMI was registered at 49.7, nearly unchanged from the previous month’s 49.8.  Of scant consolation would be that this was above the consensus forecast of 49. New orders have been consistently declining while inventory build-up has brought business activity to a halt.

With energy security concerns being paramount, Eurozone consumer confidence data released earlier today contracted by 24.9 in August 2022, rising by 2.1 points compared to a historic low of (-)27 registered in July 2022. This is the sixth consecutive month that consumer confidence has been in the negative 20s territory. Demand for services is expected to continue weakening.

Given the fresh data, ING economist Bert Colijn expects the euro area to be moving into a “recession quickly if it’s not already in one.” 

With natural gas prices surging and the continuing uncertainty due to the Russia-Ukraine war and drought conditions at the Rhine, further tightening by the ECB is set to squeeze purchasing power and lead to further depreciation of the Euro against the greenback.

Great Britain

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The S&P Manufacturing PMI Flash crashed, registering a contraction at 46, the lowest level since May 2020 during the first wave. This registered far below July’s reading of 52.1.

“Higher costs, weaker demand and bottlenecks” sunk manufacturing to its lowest since the start of the pandemic.

Composite PMI Flash registered a muted expansion of 50.9, moderating from last month’s 52.1, and below consensus estimates of 51.1.

The main drag on the economy came from the anaemic manufacturing sector which accounts for only 9.7% of GDP, and 7.3% of all jobs as of March 2021.

The services sector, the mainstay of the British economy, contributes 78% to GDP, saw an expansion in Services PMI Flash to 52.5, although this was a moderation from July’s 52.6.

With inflation in the double digits and forecasts by the Bank of England predicting this could reach 13% during the winter, all indications appear that the British economy may be slipping towards a painful and gloomy stagflationary phase.

Citi Bank has forecast a more dire 18% inflation by January of 2023, particularly given the loosening of energy price caps during the winter.

Annabel Fiddes, Economics Associate Director at S&P Global noted that customer demand, labour shortages and raw material bottlenecks deeply hampered manufacturing.

Although weakened, the UK services PMI was a positive surprise, falling only a touch from 52.6 to 52.5 against expectations of 52. However, given prevailing conditions, the expansion is likely to be short-lived.

Source: Trading Economics


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Despite inflation easing somewhat in July, and prices at the gas pump retreating to below $5 following lower commodity prices, the August Composite PMI Flash registered a devastating contraction to 45, well below already pessimistic market estimates of 49, according to Trading Economics.

This pullback from July’s reading of 47.7, added to the gloom around the US economy amid the Fed’s hawkish tone.

Market commentators will be eagerly listening to Governor Powell’s comments during Friday’s Jackson Hole meeting to see if this contraction could weaken the Fed’s resolve to continue its policy normalization.

Although above the market estimate of 51.1, the preliminary manufacturing PMI flash eased to 51.3 compared to the previous reading of 52.2.

A November 2020 study by the U.S. Bureau of Labor Statistics found that manufacturing contributed to 12.8 million jobs just before the pandemic.

The service sector absorbed the brunt of the country’s economic woes, with a deep contraction to 44.1, compared to the previous month’s reading of 47.3.

PMI Manufacturing, PMI Services and PMI Composite dropped to 25-month, 27-month and 27-month lows.

Source: Trading Economics

Siân Jones, Senior Economist at S&P Global Market Intelligence stated that the US private sector looked in bad shape with inflation dampening consumer spending and constraining upstream demand. Moreover, filling vacancies has become increasingly challenging.

Although inflation did ease, high prices remain robust and it is unclear if CPI has indeed peaked.

In all likelihood, global economies will likely have to face gloomy days ahead, particularly in light of rising interest rates.

Jerome Powell’s remarks on Friday will be key to deciphering the Fed’s next move and identifying relevant risk catalysts for the remainder of the year.


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