U.S./Euroland Gap in Service Sector Activity Narrow Again

August 5, 2009

PMIs U.S. Ezone   U.S. Ezone   Sum of
  Services Services Spread Mf’g Mf’g Spread Spreads
Feb 2008 49.7 52.3 -2.6 48.8 52.3 -3.5 -6.1
March 49.9 51.6 -1.7 49.0 52.0 -3.0 -4.7
April 51.9 52.0 -0.1 48.6 50.7 -2.1 -2.2
May 51.2 50.6 +0.6 49.3 50.6 -1.3 -0.7
June 48.8 49.1 -0.3 49.5 49.2 +0.3 0.0
July 49.6 48.3 +1.3 49.5 47.4 +2.1 +3.4
August 50.4 48.5 +1.9 49.3 47.6 +2.1 +4.0
Sept 50.0 48.4 1.6 43.4 45.0 -1.6 0.0
October 44.6 45.8 -1.2 38.7 41.1 -2.4 -3.6
November 37.4 42.5 -5.1 36.6 35.6 +1.0 -4.1
December 40.1 42.1 -2.0 32.9 33.9 -1.0 -3.0
Jan 2009 42.9 42.2 +0.7 35.6 34.4 +1.2 +1.9
Feb 41.6 39.2 +2.4 35.8 33.5 +2.3 +4.7
March 40.8 40.9 -0.1 36.3 33.9 +2.4 +2.3
April 43.7 43.8 -0.1 40.1 36.8 +3.3 +3.2
May 44.0 44.8 -0.8 42.8 40.7 +2.1 +1.3
June 47.0 44.7 +2.3 44.8 42.6 +2.2 +4.5
July 46.4 45.7 +0.7 48.9 46.3 +2.6 +3.3

 

The PMI differential in service sector readings returned to less than a single point in July, suggesting that June’s spike to 2.3 points was an aberration.  The services spread has been less than a point in five of this year’s seven months.  The U.S. index of 46.4 was down from 47.0 in June and 1.6 points less than forecast by analysts.  In contrast, Euroland’s score of 45.7 was a tenth higher than its preliminary estimate, a full point higher than June’s final reading, and 0.6 points above what analysts were projecting prior to release on July 24th of a preliminary estimate.  All U.S. and Euroland results and major sub-components remain below 50, connoting contraction. The U.S. readings for output, orders, and jobs were each lower in July than June, indicating faster rates of decline.  Euroland’s employment index also fell in July, but the region’s orders index went up.  The right-most column in the matrix above is the arithmetic sum of the manufacturing and services spreads.  Those spreads are calculated by subtracting Euroland’s score from America’s score.

The United States commands a clearer advantage over Euroland in manufacturing than in services.  This makes sense because manufacturing is more sensitive to currency movements.  A rising euro benefits the United States but makes Euroland products less competitive.  PMI trends suggest a more synchronized recession than do real GDP growth trends.  In the two quarters between 3Q08 and 1Q09, real GDP fell 5.9% at an annualized rate in the United States but 40% more steeply (that is, 8.3% saar) in Euroland.  The rate of contraction of U.S. GDP last quarter (1.0% saar) is also likely to be significantly slower than Euroland’s, which will be reported on August 13th.  U.S. real GDP dropped 3.3% in the year to 1Q09 and 3.9% in the year to 2Q09, while Euroland GDP fell 4.8% in the year to 1Q09 and no doubt more sharply between 2Q08 and 2Q09 than between 1Q08 and 1Q09.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.

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