S&P Global’s preliminary May PMI results are forecast to show the first manufacturing PMI contraction since June of 2020. At the same time, the services sector will probably remain quite insulated. The survey period coincided with the two weeks in the middle of the month. It is showing us still a very important pulse on economic activity, indicating that the Services PMI should hold steady at 50.8, a slight dip from 51.4. On the other hand, the Manufacturing PMI is expected to continue a downward trend to 50.2 from 50.7.
S&P Global Market Intelligence Chief Business Economist Chris Williamson pointed out the continuing uphill battle for any growth in business activity. Swonk emphasized that the drop in April’s PMI data reflects a rapid and deep slowdown. Nonetheless, this expansion is happening against the backdrop of a rapidly deteriorating economic landscape, with price pressures mounting. A dangerous combination These trends continue at a time when the central bank is under intense pressure to shore up an increasingly faltering economy.
Current PMI Trends
The report from S&P Global comprises three critical measures: the Manufacturing PMI, the Services PMI, and the Composite PMI. Readings above 50 mark expansion, and readings below 50 mark contraction. The Manufacturing PMI is forecast to drop, emphasizing a challenging landscape for the industry. Forecasts suggest that it will fall from 50.2 to 50.1. The Composite PMI is expected to drop to 50.6 from 51.2 in March.
TD Securities analysts recently pointed out further signs of significant economic volatility. As they explained, though temporary shocks may buffet quarterly growth, these effects would not persist through the full year. Although there is a continued decline in manufacturing, looking to the services sector provides some opportunity to be more optimistic. Recent positive developments in trade relations between the United States and China have contributed to this positive sentiment.
“Note that the survey is conducted during the two middle weeks of the month. With that said, while we are projecting an increase in the services index to 52.0, we look for a decline in the Manufacturing PMI to contraction territory,” – analysts at TD Securities.
Economic Implications
This expected drop in manufacturing activity, especially after seven months of rising costs, has many worried about increased price pressures throughout the economy. Williamson emphasized this point, stating, “At the same time, price pressures intensified, creating a headache for a central bank which is coming under increasing pressure to shore up a weakening economy just as inflation looks set to rise.” This sentiment highlights the tightrope walk that legislators will need to do with regard to encouraging economic development while avoiding inflationary pressures.
PMI increases and decreases are important signals to economists and policymakers. They are essential to these professionals’ ability to assess trends in production, export trends, capacity utilization trends, employment trends, inventory build up, and much more. These early advance readings help paint a picture before official statistics are released, giving stakeholders the ability to see past the noise and understand current economic conditions.
Currency Market Reactions
While the PMIs aren’t the only game in currency markets, they’re certainly a big portion of the action. Specifically, EUR/USD is surging above the 20-day Simple Moving Average for the first time in a two-week period. The pair remains near three-year highs above 1.1500. This is a concrete indication of increasing confidence about economic prospects in the eurozone, despite the changing tides of global trade.
As market participants digest these mixed signals from the PMIs and ongoing currency fluctuations, they remain vigilant for signals of sustained recovery or further deterioration in economic conditions. Analysts will closely monitor upcoming data releases and central bank communications to understand potential implications for monetary policy and economic growth.