The PMIs are compiled from surveys of purchasing managers at 400 companies in each of several countries. They cover manufacturing, services, construction, and the whole economy. Managers are asked about a host of things: current and future activity, new orders, employment, suppliers’ delivery times and more. They provide a pretty decent leading indicator of GDP. For each index and sub-index, the magic number is 50: a figure above that suggests that activity is increasing; anything below it points to contraction.
Manufacturing, which was already shrinking in the eurozone, didn’t escape: its index slid from 48.7 to 39.5. In fact, notes Bert Colijn of ING, a Dutch bank, the manufacturing figure was pushed up by longer supplier delivery times. Normally that is a sign of strength; now it signals disruption.
Britain’s figures weren’t as bad, but wretched all the same; and the country is a few weeks behind continental Europe both in the number of cases of the virus and in its restrictions on daily life. Only on March 23rd did the prime minister announce a near-total lockdown, and the survey was conducted from March 12th to 20th.
How this translates into a decline in GDP is hard to say. Chris Williamson, the chief economist at IHS Markit, notes that the March numbers are roughly consistent with a fall in American GDP of 5%, at an annualized rate, and around 2% quarter-on-quarter (ie, faster still) in the euro area. But with such a sharp fall, extrapolating from past relationships is hard. And March is only the beginning. Economists are already predicting far, far steeper falls in second-quarter GDP.