Business Surveys Share Some Reasons to Be Thankful

Thanksgiving is in a few days, but we are giving thanks a little early for the latest crop of flash purchasing managers’ indexes (PMIs), courtesy of S&P Global. Despite an abundance of noise and fearful headlines, these monthly surveys (where readings above 50 indicate expansion) suggest private sector activity in some major developed economies is chugging along—an underappreciated positive.

UK Budget Fear Overshadows All

Starting across the pond, UK Chancellor of the Exchequer Rachel Reeves’s Budget has dominated financial coverage for months, and it all comes to a head Wednesday. The specifics remain unknown, and though the government has seemingly been walking back some hot-button proposals (the so-called “mansion tax” reportedly being the latest casualty), most experts see tax hikes as inevitable—and that these levies will hurt businesses either directly or by weighing down consumers.

This has weighed on UK moods, as Budget worries “hit every part” of research outfit GfK’s latest consumer confidence survey.^[i] S&P Global’s weaker flash November PMIs are thus right in line with sentiment. The composite PMI (which aggregates both services and manufacturing) fell to 50.5 from October’s 52.2.^[ii] The Services PMI dropped to 50.5 from October’s 52.3, though manufacturing climbed into expansion territory (from October’s 49.7 to 50.2).^[iii] S&P’s Chief Business Economist Chris Williamson blamed the malaise on the Budget, adding economic conditions will remain tough next year “… linked to speculation that further demand-dampening measures will be introduced in the Budget.”^[iv]

The pessimism is understandable. All the trial balloons and nonstop speculation have stirred uncertainty, which can discourage investment and spending as businesses wait and see what measures they have to deal with. But Budget uncertainty needn’t derail UK economic growth. Memories are short, but similar warnings arose last year. Reeves implemented measures that pundits assumed would knock businesses (e.g., a payroll tax and minimum wage hikes), which took effect this April. Yet as we pointed out last month, after an April dip, the UK services PMI expanded steadily through November. Tax changes create winners and losers, but they needn’t cause economic activity to shrivel. For investors, all the talk and dour outlooks pre-price that Budget fear into stocks. That likely sets up some relief once clarity arrives Wednesday.

Following Up on France

Beyond the UK, we have other evidence political uncertainty doesn’t derail business activity—see France. In October, as a budget impasse led to Prime Minister Sébastien Lecornu resigning—then returning days later—the country’s flash October composite PMI found businesses blaming volatile domestic politics for weaker consumer spending. A month later? S&P Global reported France’s composite PMI rose to a 15-month high of 49.9 from October’s 47.7—indicating fewer businesses contracted.^[v] Moreover, weakness was concentrated in manufacturing (47.8).^[vi] France’s flash services PMI climbed to 50.8 from October’s 48.0, also a 15-month high and back in expansion.^[vii]

Now, French PMIs have been detached from GDP for almost three years. Since 2023 began, France’s composite PMI contracted in 29 of 35 months.^[viii] Over that same timeframe, GDP contracted just once in 11 quarters—so weak PMIs haven’t translated to falling economic output.^[ix] But overall, political uncertainty’s macroeconomic effects tend to be fleeting—worth keeping in mind whenever harsh rhetoric and warnings dominate headlines, especially with France’s budget still struggling to pass.

Government Shutdown Didn’t Shut Down US Private Sector

America’s record-long shutdown ended earlier this month, so data nerds can breathe easy—the jobs report, CPI, retail sales, durable goods and GDP will be back soon. While we welcome these official data, the handwringing over delayed reports was always misplaced to us. The world wasn’t ever flying blind given the abundance of private data sources, including PMIs.

PMIs don’t reveal the magnitude of growth or contraction, but they do shed light on what businesses are seeing. America’s flash November reading showed ongoing growth, as services registered 55.0 (from October’s 54.8) while manufacturing dipped to 51.9 (from October’s 52.5).^[x] But S&P also reports other details, including employment and prices. The former rose for the 11^th time in the past 12 months, as businesses added headcount to meet improving customer demand.^[xi] As for the latter, respondents blamed rising prices on tariffs and higher wages, but S&P noted “competitive pressures restrained pricing power and meant selling price inflation remained below recent peaks”^[xii] In plain English, companies didn’t pass on all higher costs to customers because they didn’t want to lose business (and they could afford the hit).

For investors, markets look ahead, and they are your best gauge of expected activity—not backward-looking data. Recent volatility notwithstanding, US stocks have rebounded alongside global markets after an early-year correction. If a big, bad economic downturn loomed, stocks would signal trouble first.

These developed economic data confirm private businesses remain more resilient than appreciated. That isn’t news to stocks, but it confirms this global bull market hasn’t risen on hot air.