Market News

Yearend Growth Softens

Guest Post by Ned Davis Research

The global economic expansion softened somewhat at the end of 2021, according to the latest PMIs, as the COVID pandemic continues to present challenges to the outlook. The global composite (services and manufacturing) PMI fell 0.5 points in December to 54.3. It was the first decline in four months and the lowest level since September.

Growth Resilient

The latest reading, however, is still comfortably above its long-term average of 53.4, indicating robust growth. Moreover, the composite is historically consistent with 3.9% global real GDP growth.


The COVID pandemic, and the latest Omicron variant, continues to present the greatest risk
to the global outlook as it impacts spending patterns, supply chains, and inflation.

The good news is that most COVID waves in 2021 slowed, but did not derail, global growth. This speaks to the benefit of rising COVID vaccines and treatments, as well as the adaptability of consumers and businesses throughout the pandemic. This narrative appeared to have played out in December, the first month of a notable impact of the Omicron variant, as seen in the chart above.

Elevated inflation and supply chains issues continued to plague firms, albeit at a less pronounced pace, providing some light at the end of the tunnel.

Manufacturing Steady 

The global manufacturing PMI was essentially unchanged at 54.2 for a third straight month.
Although down from its May peak of 56.0, it’s still significantly above its historical average
of 51.5. 

Output growth accelerated to a five-month high, while new order growth picked up modestly. The expansion in export orders edged down moderately. However, NDR’s breadth reading of export orders (i.e., the share of economies reporting rising orders) rose to 76%, a five-month high.

The inventory index climbed to an all-time high, as businesses have responded to shortages by ramping up their stocks of goods. The new orders index continued to outpace inventories, but by significantly less than earlier in 2021. Backlogs picked up, but also remain below their peaks from earlier in 2021.

Supply chain issues remained elevated, but appear to be showing signs of moderating. The supplier delivery times index increased 1.4 points, up in five of the past six months, to 37.8. As shown on the chart at right, delivery times are still near historical highs. However, the pace of growth has slowed to the weakest since April 2021, a sign that global supply chain issues are abating.

Employment growth picked up modestly. But several countries continued to report difficulties
in finding adequate labor.

The share of economies with expanding manufacturing sectors was little changed at 89%
in December. While down from its cycle peak of 95% reported in October, the
breadth reading is still historically consistent with strong global growth. 

Services Slows

Unlike manufacturing, global services succumbed to the Omicron variant in December,
as the services PMI fell one point, the most since the Delta variant wreaked havoc on the
sector in August, to 54.6. Even so, the index is still above its long-term average of 53.8.

Most other indexes, such as new orders, exports, and backlogs, edged down modestly, but remained surprisingly resilient considering the size and breadth of the latest wave of COVID infections. The future output index rose to a six-month high.

The share of economies with growing services sectors also remained strong, holding at around 85% in December, well above past COVID waves in 2021 (see chart below). However, the share of economies posting monthly declines in their services PMIs was also at 85%, indicating that Omicron still slowed services growth in most parts of the world.

Prices Easing?

Global input and output prices remained historically elevated, but are showing nascent signs of easing. The global composite input price index fell for the first time in four months and by the most since June. Meanwhile, output price growth slowed for a second straight month. The former continued to outpace the latter, indicating that businesses are absorbing some of the higher costs.

The slowdown in price growth was most evident in the manufacturing sector, a promising
sign since the sector had been plagued most by bottlenecks and shortages. The decline was broad-based, as over 70% of economies saw both input and output price growth slow, the former being the largest share since April 2020. Input and output prices eased modestly in the services sector.

Developed economies continued to endure the greater price pressures. Even so, both input and output price growth slowed, also led by the manufacturing sector, suggesting an easing in consumer price growth in the coming months. Both the composite emerging market input and output price indexes fell to four-month lows.

China Accelerates

The Markit composite PMI rebounded 1.7 points to 53.0, a five-month high, as both the service and manufacturing sectors saw growth accelerate. The official surveys recorded similar moves. While most component indexes gained, employment weakened as firms hesitated to replace workers that retired or quit voluntarily. Moreover, recent spikes in COVID cases may impede services output in the coming months.

Other EMs Positive

On a month-to-month basis, the composite PMIs among other large emerging markets,
such as India, Brazil, and Russia, were mixed. However, all those economies either held in,
or moved into, expansion territory. 

U.S. Slows Slightly 

The U.S. Markit composite PMI was little changed, edging down 0.2 points to 57.0. Although down from its peak earlier in 2021, the reading is still consistent with robust growth. The ISM indexes showed sharper declines in December, but similar to the Markit PMIs, they are still consistent with strong expansion.

Europe Does Too

The Composite PMI for the eurozone fell 0.5 points to 58.0, a 10-month low. But this masks divergences among sectors and countries. The services PMI plunged, as stringency measures increased in response to the Omicron variant, while the manufacturing PMI edged down more modestly. Germany’s composite PMI fell into negative territory for the first time since June 2020,
while conditions remained resoundingly positive in Ireland, France, and Italy.

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