Line chart showing composite PMIs for the U.S., the eurozone, and China for the past three years (January 2021 – December 2023). The U.S. was in expansionary territory from early 2021 to October 2022 but gradually declining from its November 2021 peak. After briefly slipping into contractionary territory at year-end 2022, the index reverted to expansion in 2023. The eurozone experienced a greater drop down and a more volatile path over the time shown. Eurozone composite PMI had been on a downtrend since mid-2021 and in contractionary territory since July 2022 before recovering starting in early 2023. However, by mid-2023, it resumed its downtrend. China has had the most volatility in the past year, with a heavy temporary drop down in 2022. In recent months, the Chinese composite PMI has increased from 2022 lows but remains weaker than the spring 2023 peak.
Sources: Bloomberg and Wells Fargo Investment Institute. Eurozone PMI: monthly data from January 1, 2021, to December 31, 2023. PMI = Purchasing Managers’ Index. U.S. Composite Purchasing Managers’ Index level is the Institute for Supply Management Composite Index®, which is a composite index based on the diffusion Indexes of five of the Indexes with equal weights: new orders, production, employment, supplier deliveries, and inventories. Eurozone and China PMI levels use the Markit Manufacturing PMI Index, which is an index developed from monthly business surveys used to monitor the condition of industries and businesses. An index value over 50 indicates expansion; below 50 indicates contraction. The values for the index can be between 0 and 100.
Key Takeaways
- Europe’s greater exposure to central-bank credit tightening, weakening foreign trade, and commodity disruptions tied to the war in Ukraine have weakened its economy.
- Global manufacturing is already on the leading edge of the downturn in developed economies because of its greater exposure to energy costs, the rotation to services spending, a struggling Chinese economy, and to a more general slowing of global trade and spending tied to elevated inflation and interest rates.