Do Surveys Say Global Growth Is Stalling?

November’s final purchasing managers’ indexes (PMIs, surveys attempting to tally growth’s breadth) hit the wires last week, with headlines we saw bemoaning weakness in Europe and mixed data in America and Japan. Whilst the new releases are worth weighing, we don’t think they reflect any material change in the economic backdrop a month before yearend. As 2025 nears, the trends long driving growth seemingly remain, in our view.

As Exhibit 1 shows, America’s composite S&P Global PMI—which combines services and manufacturing—hit 54.9 in the month, up from October’s 54.1 (readings above 50 mean more responding firms reported growth than contraction). UK and Japanese composite and services PMIs also topped 50, albeit by much narrower margins.

Exhibit 1: American Growth Increasingly Stands Out

Source: FactSet and S&P Global, as of 4/12/2024.

For America, we think mid-50s composite and services readings suggest fairly broad-based growth—though PMIs never reveal how much they grew or shrank in output or magnitude terms. Manufacturing remains below 50—like most of the rest of the world—indicating contraction. But services, the vast majority of US economic activity, hit a 32-month high in S&P Global’s survey.^[i]

This partly reflects brighter moods amongst respondents, in our view, with the uncertainty of US elections behind us. Although we find PMIs are generally considered as gauges of production and orders, sentiment factors into them as well. Some questions incorporate purchasing managers’ business forecasts, which are inherently opinionated. As S&P Global’s US Manufacturing PMI noted in its November release:

“Optimism about the year ahead has improved to a level not beaten in two and a half years, buoyed by the lifting of uncertainty seen in the lead up to the election, as well as the prospect of stronger economic growth and greater protectionism against foreign competition under the new Trump administration in 2025.”^[ii]

Or for services:

“Companies have reported stronger demand for services thanks to the clearing of political uncertainty following the election, as well as brighter prospects for the economy in 2025 linked to the incoming administration and hopes for lower interest rates.”^[iii]

However, a separate US services PMI conducted by the Institute for Supply Management (ISM) showed growth narrowed marginally—largely on sentiment around possible tariffs from the incoming Trump administration or its cabinet appointments.^[iv]

In our view, rather than any particular result, just having a clear and uncontested outcome provided a sense of relief, yet ISM’s survey suggests to us there may be a further clarity boost remaining. Whether specific policy goals some commentators we follow now anticipate will—or won’t—be achieved is another matter.

In contrast, attitudes darkened in Europe—though we find that has been par for the course for some time. Most notably, the eurozone’s services PMIs soured, crossing below the 50 threshold and joining longstanding manufacturing weakness. But we think it is premature to read too much into so-far shallow (save France) one-month dips. See Japan’s flip back over 50 last month.

Moreover, again, PMIs aren’t magnitude gauges. If the minority of firms reporting expansion grew faster than the majority experiencing contraction, PMI readings barely below 50 won’t necessarily indicate falling output in metrics like gross domestic product, a government measure compiling the volume of economic activity. See Japan: Its October manufacturing output accelerated to 3.0% m/m growth from September’s 1.5%, despite sub-50 manufacturing PMIs then.^[v]

Or take the eurozone, including Germany and France. Although their manufacturing PMIs remain well below 50, their monthly manufacturing output has alternated between expansion and contraction all year.^[vi] Meanwhile, eurozone GDP (including Germany and France) has expanded overall—at least through Q3.^[vii]

And, here too, political uncertainty may be colouring firms’ economic outlooks. France’s recent budget battles toppled the government, with rhetoric from commentators we heard touting a fiscal crisis that could sour the economy. (We don’t think that is very likely, but we find political speak very often isn’t about probable outcomes.) Similarly, budget disagreements in Germany spurred talk of snap elections now set for February. As those pass—like the UK budget and US elections—we think sentiment will likely improve.

Keep in mind that sub-50 PMI readings aren’t coming out of the blue. They occurred in 2022, too.^[viii] Arguably, the headwinds then—e.g., inflation (generally rising prices) and geopolitics—were greater than today’s. But global growth weathered the storm without recession (deep or prolonged economic contraction).^[ix] Now, 2022 did feature a recession-less bear market (a typically fundamental decline exceeding -20%) based on our observations. But our research shows the sentiment-driven headwinds then were surprising and legion—not so now. According to our analysis, these data merely extend long-running trends we have seen throughout 2024.