J.P. Morgan Global Composite Output Index Reaches 133-Month Low: Things to Know

In addition, there has been a month-on-month decline of 6.7 points in the index level, the second largest decline in the history, with the previous record set in October 2001.

Some of the most important economic indicators used by global investors to assess opportunities and predict economic changes include Gross Domestic Product (GDP), Employment Indicators, Consumer PRICE INDEX (CPI), Central Bank Minutes, and Manufacturing and Services PMI.

While most of these economic indicators evaluate historical data to give conclusions, economic surveys are particularly valuable to investors, as they offer a peek into the future and help in predicting value that is more insightful than looking into the past. Purchasing Managers' Index (PMI) basically involves surveying the purchasing managers across businesses in a particular sector, with two of the most well-known PMI surveys being the manufacturing PMI and the services PMI.

Investors look at PMI surveys to gain proper understanding of the economic health, given it includes sales, employment, inventory, and pricing insights. Now, speaking of the manufacturing sector, it is the first to exhibit visible signs of a slowdown amidst crisis, as production tend to react to consumer demand and is the first to get hit. Thus, to plan for the future production and investment opportunities, PMI survey is considered as a highly watched after economic indicator. Very often, it is the first major survey to get released every month.

In the present scenario, health crisis caused by the outbreak of COVID-19 and the aggressive lockdown and social distancing measures being implemented around the world have largely contracted economic activity, owing to operational disruptions across all sorts of businesses.

Consequently, the J. P. Morgan Global PMI Composite Output Index has indicated that:

• Output is contracting at the sharpest rate in the past 11 years.
• The downturn in manufacturing sector remains ongoing and following a downward trajectory.
• Activity in the services sector has contracted to a great extent in the survey’s history.

Contraction in Services Sector at Record Level

Furthermore, business activity, new business and new export business have all contracted by an extreme degree under the services sector, which includes everything from banking, communications, wholesale and retail trade, and professional services such as software development, engineering, medicine, non-profit economic activity, and government services including defence and administration of justice. And, as a result, one of the most extreme aftermath of the COVID-19 pandemic has been that millions of people have lost their jobs in the past five weeks while around 26 million have filed for jobless claims since the coronavirus outbreak has provoked millions of employers to unfortunately close their doors and lay off.

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All of the services’ PMI surveys being released around the world are signalling declines in output, which is much higher than the one being observed in the manufacturing production. The new manufacturing order intakes have also come down sharply since early 2009, that was the time of the sub-prime mortgage crisis, while the new export orders are also presently falling at the fastest pace in nearly 11 years. Overall, the output has contracted across all six of the sub-sectors included in the survey with the consumer services and business services categories witnessing the largest declines.

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Global PMI Composite Output Index suggests that:

• In China, there has been some easing in the rate of economic contraction, as its composite Output Index has improved to 46.7 in March 2020 from 27.5 in February 2020. Only China has reported an increase in its manufacturing output for the month of March 2020, although this increase is only a stabilisation from a much severe downturn that happened in February 2020.
• For the United States, it has not been so bad and perhaps the weakest downturn amongst all of the most developed economies in the world. However, business activity has deteriorated for sure to a large extent since the height of the 2008 global financial crisis in the US.
• Japan too has reported extensive large-scale business contractions, the steepest decline since 2009, excluding impacts of the tsunami and earthquake crisis in 2011.
• Although the Eurozone countries have been improving their containment measures to prevent the spread of the coronavirus pandemic, still the final Output PMI has indicated the steepest collapse of business activity ever since 1998, diving from 51.6 to an all-time record low of 29.7.

During these unprecedented times of crisis and high level of uncertainty clouding the minds and decisions of business leaders and governments, the J.P.Morgan Global Composite PMI is a crucial tool used by market participants as the first indication of change in worldwide economic business conditions every month. As a result, this data empowers decision makers in the financial world as well as governments, globally, to make better informed decisions and policies at a much earlier time than would otherwise be the case.

Moreover, the wide coverage of the indices, together with their speed of production, accuracy and direct comparability, have adorned them the status of unmatched economic indicators.

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