Hidden Concerns: What Do the May Global PMI Data Tell Us?

EconomicsGlobal What does theMayglobalPMI data tell us? ◆The global composite PMIremained unchangedin May,withboth manufacturing and service sector expansion… Maitreyi DasGlobal EconomistHSBC Securities and Capital Markets (India) PrivateLimitedmaitreyi.das@hsbc.co.in ◆…but longer delivery timesand frontloadingcontinue toinflate the headlinemanufacturingindex… Bethan EllisGlobal EconomistHSBC Bank plcbethan.ellis@hsbc.com ◆…as businesses expect increased price pressures and The global composite PMIin Mayrecorded another month of expansion,at51.8–thesame asin April.Both manufacturing and services stayed in expansionaryterritory. The global manufacturing PMI came in at 52.6 in May, unchanged from April.The headline isstillpropped up by longer suppliers’ delivery times and frontloading.Firms expect Middle East tensions to disrupt supply chains, pushing prices higher.In the US, both the S&P and ISM manufacturing PMIs showed solid gains in The servicessectortells a similar story.Higher costs appear to be dampeningdemand,particularly in the eurozone andthe UK.In theUS,new orders rose, butfirmsreducedemployment on both measures.Mainland China and India saw activity We don’t think the current PMI strength is likely to last, giventhe challenges of higherinflation. If costpressuresworsen further, demand destruction could follow. In thisenvironment, it’s worth leaning more on components like employment, output,and Issuer of report:HSBC Securities and CapitalMarkets (India) Private Limited Disclosures & Disclaimer This report must be read with the disclosures and the analyst certifications inthe Disclosure appendix, and with the Disclaimer, which forms part of it. View HSBC Global Investment Research at:https://www.research.hsbc.com Three key takeaways from this month’s data 1.Intensifying supply shocks and price pressures are a global theme now TheMay PMI releases point to another month of “distorted” growth–headline resiliencemaskinglonger delivery times. Quantities of purchases accelerated for a second consecutivemonth, consistent with firms frontloading inputs amid heightened supply risks linked to the Input costs intensified further in May, with global manufacturing input costs rising at the fastestpace since June 2022.The US recorded the sharpest increase innearly fouryears, withrespondents pointing to higher costs for petroleum products, steel,and freight. France,Germany, Japan, the UK,and the Philippines also saw faster inputprice inflation. Yet passthrough remains incomplete in many economies, implying renewed margin squeeze rather than In the US, boththeS&P Global and ISM surveys noted comments pointing to acceleratedstockpiling, helping to lift new orders and production to multiyear highs. Japan, India, Korea,and Vietnam also recorded sharp increases in purchasing volumes, reflecting concerns over 2.Regional divergence: US strengthvsa fragile eurozone The US manufacturing upswing looks increasingly entrenched, with production rising to its highestlevel since April 2022.By contrast, the eurozone is losing momentum. The region’s two largesteconomies–Germany and France–both slowed, with respondents noting that Middle East- The eurozone headline PMI remainedabove 50, but the composition warrants caution. Part ofthe support comes from longer delivery times, which can mechanically liftthe index(the logicisthat,ina normal situation,longer delivery times indicate higher demand).Removing delivery Elsewhere,in Asia, manufacturing activity improved in economiesincludingIndia,Korea,and Japan,while they expanded at a slower pace in mainland China. However, thepositiveimpulse appearsmore risk-thandemand-led: a meaningful share of the pickup is consistent with precautionary buying 3.ServicesPMI:Higher costs have started to impact demand The global services sector continued to expand in May,with the global servicesPMIat51.3.New ordersexpanded, with panellists citing clients frontloading purchases. Butemploymentdeclined, signallingsubduedunderlying demandand higher cost pressures.Ultimately,higher price The sector is also showing a familiar split. Asia and the US are holding up better than theeurozone and the UK. Stronger new orders–especially in India and mainland China–havedriven a faster pace of activity.In the US, the ISM services accelerated, while the S&P indexticked down but stayed in expansionaryterritory, both supported by new orders.However, A swift de-escalation in the Middle Eastwouldease supply chain constraints and take some heat outof prices, which would help demand.Nonetheless, the conflict has already run for more than threemonths, and evenifthe Strait of Hormuzwere to reopen,normalisation in PMIs would take time. Manufacturing PMIs Source:Rating Dog,S&P,Macrobond Source: S&P Global,Macrobond. Note: The vertical line reflects the Liberation Day tariffdisruption Source: S&P Global, Macrobond. Note: Whole economy PMI Source: S&P Global, Macrobond, HSBC calculations Other key tr