Line chart tracking U.S., eurozone, and China purchasing managers’ indexes (PMIs). Y-axis: Composite Purchasing Managers’ Index level; x-axis: JOctober 2019 – September 2022. Index levels below 50 indicate contraction; above 50 indicate expansion.
From October 2019 to late January 2020, U.S., eurozone and Chinese purchasing managers’ indexes indicated stable or expanding manufacturing and non-manufacturing activity. The U.S. led the way through most of that period with index levels generally in the mid-50s. The eurozone began the period near 50 and remained at or near that level until late February 2020. China also opened the period near 50 and remained within a few points of that level until late January 2020 when it plunged into contraction, reaching an index value of 27.5 by late February 2020. In late February, the eurozone began a similar and even deeper decline in the index level, falling below 13. And by late February 2020, the U.S. also began a less precipitous decline into contraction, from a level of 56 to just above 52 in March and then falling into contraction with a level of just short of 42 by late April.
Since those declines, all three regions have shown signs of recovery. China’s PMI level rose from 27.5 to nearly 47 by late March 2020, then increased to near 48 by late April, and by the end of Q3 2022 was at about 56 after an April drop to near 37. The eurozone level also rose sharply from below 13.6 in April 2020 to near 53 in late March 2021 and was at about 49 by the end of Q3 2022. The U.S. level rose from nearly 42 in late April 2020 to near 64 in March 2021 and stood at about 56 by the end of Q3 2022.
Sources: Bloomberg and Wells Fargo Investment Institute. Monthly data from July 1, 2019 to September 30, 2022. 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
- The U.S. and Europe are in a foot race to a recession that we expect to be deeper overseas, due to Europe’s greater exposure to energy and to other supply disruptions tied to the war in Ukraine.
- Global manufacturing likely will be on the leading edge of the recession in advanced economies because of its greater exposure to energy and other supply disruptions, COVID-related shutdowns in China, and to a more general slowing of global trade and spending tied to elevated inflation and interest rates.