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Recovery Solid in June; July Clouded by Shutdown Risk

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Global Economics – June 26, 2020


May certainly and June as well are destined for the history books, posting a series of record high scores that were, however, not the result of strength at all but of very easy comparisons against the shutdown months of March and April. Based on flash PMI reports that dominated the week, June looks to have been a positive month of recovery for much but not all of the global economy. The biggest news from June will be in the coming week with the US employment report where Econoday’s consensus is calling for exceptional gains. July, however, is suddenly another story; how it turns out hinges entirely on infections rates and the risk of new shutdowns.

The Global Economy

Purchasing manager indexes

PMI indexes are beginning to move from the very bottom of their range to the no-change 50 line. This movement indicates – not that business activity has already climbed out of the cave-in – but that the rate of contraction relative to the cave-in is stabilizing. The smaller the columns in the accompanying graph, the smaller the monthly change. This is key so let’s repeat it for emphasis! PMI indexes, which are based on respondents’ own assessments of monthly change at their firms, track change on a month-to-month basis only. Now, let’s look at June’s star PMI performer: France, where monthly change, at 52.1 for manufacturing and 50.3 for services, has already gotten back above the 50 line. This means that after severe contraction in March, even more severe contraction in April, followed by still heavy in contraction in May, France’s PMI samples in June reported a bit of growth relative to May. This is not growth relative to the happy month of February and against which June’s comparisons would in fact shrivel. Remember, it’s only about month-to-immediate-month: respondents are asked whether business is better than last month, unchanged from last month, or worse than last month. Details in June’s report from France included the best monthly growth in manufacturing production in more than two years and the best overall sentiment readings of the crisis.

French manufacturing and services june 2020

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