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The new export orders index from S&P Global's PMI business
surveys tracks foreign demand for both goods and services. The data
can be used to gauge export demand over time across countries and
sectors.
The new export orders index can also be aggregated to provide a
useful and timely guide to global or regional trade flows, allowing
insights into changing demand conditions well ahead of comparable
official data.
How is the PMI new export orders index
calculated?
Purchasing managers participating in S&P Global's PMI
business surveys, conducted in 44 countries, are asked how the
volume of new export orders has changed compared to the prior month
on average. The precise question wording is:
"Is the level of new orders received for export this month
higher, lower or unchanged on average than one month ago?
"This refers to the volume of new orders/business (in
units/volume terms) from customers outside of your
country."
Companies are also asked to provide a reason for any change, if
known.
The identical question is asked in both the manufacturing and
services PMI surveys, as well as in the construction PMI survey
where conducted.
Note that the question refers to the flow of new business
received from abroad via orders, not actual physical shipments in
each month. The latter will typically occur with a lag, or lead
time, depending on the availability of the product and the
necessary arrangements for fulfilment and shipping.
In a manufacturing company, goods exports are readily quantified
as those to be shipped to non-domestic customers. In a service
sector company, exports will vary depending on the sub-sector, but
will include activities such as consultancy work provided to
foreign customers as well as many travel and tourism related
activities and financial services activities.
Note that services exports will often be harder for survey
respondents to quantify in volume rather than value terms.
The percentage of responses are weighted to derive a 'diffusion
index' as follows:
INDEX = (percentage of survey panel responding 'higher') +
(percentage responding 'no change'*0.5)
Hence readings of 50 indicate no change in new export orders on
the prior month, readings above 50 indicate an increase and
readings below 50 indicate a decline.
The index is also seasonally adjusted to strip out normal
variations in demand for the time of year (we utilise the widely
used US Census Bureau X-12 ARIMA software for removing
seasonality).
To ensure the survey data are as representative as possible, in
each country the panel of companies is carefully selected to
accurately represent the true structure of the chosen sector of the
economy as determined by official data.
A weighting system is also incorporated into the survey database
that weights each response according to the size of sector in which
a company operates, and by its workforce size. The survey panels
therefore replicate in miniature the structure of the sector being
monitored.
Tracking national exports of goods and
services
The PMI new export orders index allows us to track international
demand for a country's goods and services on a timely, monthly,
basis. As an example, chart 1 shows the composite new export orders
index for the UK, along with its two major components of
manufacturing and services, up to April 2022.
In the example of chart 1, strong growth of UK exports of goods
and services was recorded from mid-2016 through to mid-2018, after
which exports first stalled and then fell into decline; a downturn
which accelerated sharply - to an unprecedented degree - during the
initial phase of the COVID-19 pandemic. UK exports of goods
recovered early in the pandemic, though the recovery was volatile
amid new waves of the virus. Services exports only started to
recover to any noteworthy extent in late-2021 and early-2022, with
the Delta and Omicron waves resulting in faltering upturns.
The survey data can therefore help us to understand the changing
direction of official data on trade for any given country, with the
PMI signals having the advantage of being available almost two
months ahead of most comparable official updates. Often there are
no high frequency official data on trade in services.
Both charts 2 and 3 plot manufacturing PMI new orders data
against official export data, in these cases hinting at imminent
slowdowns of exports out of the UK and Germany in the wake of the
Ukraine war.
Chart 4 meanwhile plots the PMI for mainland China, produced by
S&P Global for Caixin, against comparable official data. The
PMI data point to a steepening downturn in exports in April 2022
amid lockdowns designed to inhibit the spread of the Omicron
variant.
Some caution is often needed when comparing survey data with
official numbers.
Frist, bear in mind that the PMI excludes energy and
agriculture, so try to compare like-for-like where possible.
Second, the PMI data tend to show smoother trends than the
official data, the latter being susceptible to large swings due to
changes in certain high value sectors (such as aircraft shipments
or precious items). Therefore, the PMI is often best used as a
gauge of the export trend, rather than a precise guide to
month-on-month variations.
Third, official data tend to get revised after first publication
- sometimes quite significantly.
Fourth, remember that the PMI records export orders, not
shipments, as it is the latter which is measured by the official
data.
Tracking domestic v. export demand
It is also useful to compare the PMI new export orders index
with the broader PMI new orders index, the latter tracking orders
from domestic as well as export customers. As the example in chart
5 shows, after the initial pandemic downturn in demand seen in
early 2020, growth of export orders has lagged overall new orders
growth for both goods and services in the US. Exports of services
have been especially subdued (attributable to pandemic travel
restrictions limiting scope for exports of more labour-oriented
services and curbing tourism and leisure). However, in early-2022,
exports of services have revived amid looser pandemic restrictions.
A commensurate slowing in overall new orders growth for services
therefore hints at domestic demand for services having
weakened.
International comparisons
The use of the same PMI survey methodology in each country
facilitates international comparisons of export performance. For
example, chart 6 ranks countries by their manufacturing new export
orders performance.
Chart 6 illustrates how the US was reporting the strongest
growth in new export orders in April 2022 of all the economies
covered by the S&P Global PMI series, followed very closely by
the Netherlands. In contrast, Russia reported the steepest decline,
followed by Singapore and mainland China.
The use of identical national methodologies also facilitates the
aggregation of data into international, regional and global indices
by weighting each country's new orders index by the size of their
GDP.
Hence, export trends can be compared and tracked by region of
the world, as demonstrated by chart 7. Note that eurozone exports
include intra-regional trade between the member states.
The aggregating of the PMI data into an index of global export
order trends is in fact one of the most widely used applications of
the data. Chart 8 plots the global PMI new orders index against
official trade volume data, as compiled by the CPB World Trade
Monitor from individual national statistical agencies. The PMI acts
as an accurate leading indicator of changes in global trade
volumes, proxying the rate of growth in advance in all bar the most
extreme occasions such as the pandemic, and even in such unusual
times the PMI provides an early indication of turning points in the
trade cycle.
Sector trade insights
Further insight in trade flows can be gleaned from the PMI
detailed sector data, which track new export orders for individual
sectors at the global, US, European and Asian levels. This allows
the cross-sectional analysis of trade at any given time, as shown
by the global sector rankings in chart 9.
Alternatively, the sector PMI data can be used for time series
analysis, as illustrated by global exports of specific products
over time, as in chart 10, with the broader global
all-manufacturing new export orders index providing a
readily-available benchmark for relative industry performance.
Chris Williamson, Chief Business Economist, S&P
Global Market Intelligence
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
