Euro Area Recovery Passes America’s

December 3, 2009

The first difference between the U.S. and Euroland service-sector PMIs moved out to 4.3 points in favor of Europe in November, more than twice as large as October’s spread of 2.0 points.  It was Euroland’s largest advantage since November 2008.  Service-sector activity in the United States contracted for the first time since August, while the euro area registered a third straight month of expansion, led by France whose reading was 60.9, 11.6 points greater than in August.

Two days ago came news that the U.S. minus euro zone PMI spread in manufacturing had been halved to a five-month low of +2.4 points.  The algebraic sum of the two differentials depicted in the right-most column below recorded is largest second-difference change (4.9 points) between adjacent months since such swung from -3.0 in December 2008 to +1.9 in January 2009.  Back then, the United States passed Europe, meaning Europe’s recession became the more intense of the two.  Just the opposite happened last month, as the sum of the two spreads swung from +3.0 to -1.9, indicating that Euroland’s recovery may have passed America’s in strength.  This is only one indication.  The higher jobless rate in the United States than in Euroland is another.  But in one notable respect, GDP growth, Euroland continues to trail.  According to forecasters in the Economist monthly survey, U.S. GDP is likely to expand 2.6% in 2010, more than twice as much as the 1.2% increase predicted for Euroland.  The focus of U.S. macroeconomic policies is GDP-centric, so this is not a surprising result.  It is important to bear in mind that that real GDP does not capture the whole story.  The secular downtrend of the dollar over the last forty years shows that foreign exchange markets understand this truth.

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
August 48.4 49.9 -1.5 52.9 48.2 +4.7 +3.2
Sept 50.9 50.9 0.0 52.6 49.3 +3.3 +3.3
October 50.6 52.6 -2.0 55.7 50.7 +5.0 +3.0
November 48.7 53.0 -4.3 53.6 51.2 +2.4 -1.9

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