Service Sector PMI Worsened Much More Sharply in the United States Than Euroland

December 3, 2008

  U.S. Ezone   U.S. Ezone   Sum of
  Services Services Spread Mf’g Mf’g Spread Spreads
January 44.6 50.6 -6.0 50.7 52.8 -2.1 -8.1
February 49.3 52.3 -3.0 48.3 52.3 -4.0 -7.0
March 49.6 51.6 -2.0 48.6 52.0 -3.4 -5.4
April 52.0 52.0 0.0 48.6 50.7 -2.1 -2.1
May 51.7 50.6 +1.1 49.6 50.6 -1.0 +0.1
June 48.2 49.1 -0.9 50.2 49.2 +1.0 +0.1
July 49.5 48.3 +1.2 50.0 47.4 +2.6 +3.8
August 50.6 48.5 +2.1 49.9 47.6 +2.3 +4.4
Sept 50.2 48.4 1.8 43.5 45.0 -1.5 +0.3
October 44.4 45.8 -1.4 38.9 41.1 -2.2 -3.6
November 37.3 42.5 -5.2 36.2 35.6 +0.6 -4.6

 

The United States and Euroland each reported today their lowest service-sector activity levels since these data series wee developed in the latter 1990’s. A reading below 50 in these diffusion indices indicates contracting activity, and the lower the figure the sharper the drop. The U.S. score was very low at 37.3, 7.1 points weaker than in October and 13.3 points below the September setting. Here is living proof of how disastrous was the decision to let Lehman fail. Euroland’s service sector has contracted without interruption for longer than its U.S. counterpart, but the drop is shallower and steepening at a comparatively slower pace. The relative performance of services in the two sectors can be deduced from the differential between them, which widened 3.8 points to -5.2 in November. That was the most U.S.-disadvantageous result in ten months, and it outweighed America’s relative improvement in manufacturing. In absolute terms, activity in manufacturing contracted last month in both economies and did so very sharply (as both readings were in the mid-30s) and more prominently than in October. The sum of the spreads in the services and manufacturing sectors, the right-most column above, was more adverse from the U.S. point of view at negative 4.6. But the relative U.S. slide vis-a-vis Europe was even greater than the full point drop from -3.6 in October suggests because services represent a much larger share of GDP than manufacturing.

Within services, differentials between the U.S. and Euroland readings for orders and jobs also became considerably more adverse from a U.S. perspective. The new orders spread swung from +0.8 to -5.0, and the jobs spread more than doubled to -16.6 from -6.9 in October. The spread for prices had been +3.0 in October but shifted to -10.8 in November, and the U.S. reading tumbled to 36.3 from 53.4. Deflation is a bigger threat in the United States than in Euroland, where output prices had a November reading of 47.1 and input prices remained above 50. The U.S. November scores — both activity in services and associated prices — were even lower than Britain’s.

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