U.S. Minus Euroland PMI-Mf’g Spread Recovered Sharply Last Month

January 4, 2010

The unexpected 2.1-point drop in the U.S. purchasing managers manufacturing index in November was fully reversed in December, and the latest 55.9 score was 1.5 points greater than anticipated.  The orders, production, and price components each exceeded 60.  In Euroland, by contrast, December’s PMI-manufacturing index was confirmed at the preliminary estimate of 51.6, and this was only 0.4 points higher than in November.  As a consequence, the differential between the PMIs in these two regions widened 1.9 points to 4.3 points after halving in the prior month.  Euroland’s PMI was at a 21-month high, and export orders reached a 27-month peak, further suggesting that the economy grew faster last quarter than in 3Q09.  However, the overall trend of improvement masks significant differences among the European Monetary System’s 16 members.  Spain and Ireland remain in recession with sub-50 readings of 45.2 and 48.8, and Italy’s 50.8 was less than a point above the expansion-or-contraction break-even point. 

The low U.S. November reading looks like statistical noise.  Comparisons of December to October suggest that the regional trends in the U.S. and Europe are not very dissimilar.  From October to December, the U.S. index firmed 0.2 points, and Euroland’s score went up by 0.7 points.  The dollar was 2.2% stronger in December than in November on average against the euro but still 7.4% weaker than in the final month of 2008.  The strength of EUR/USD promotes U.S. export competitiveness.  It’s not surprising to see the U.S. manufacturing PMI trending consistently above Euroland’s factory PMI series.  Between December 2008 and December 2009, the U.S. index rose 23.0 points, whereas Euroland’s increased by 17.7 points.

Mf’g PMI’s U.S. Euroland Spread EUR/USD
Feb 2008 48.8 52.3 -3.5 1.475
March 49.0 52.0 -3.0 1.553
April 48.6 50.7 -2.1 1.574
May 49.3 50.6 -1.3 1.555
June 49.5 49.2 +0.3 1.557
July 49.5 47.4 +2.1 1.577
August 49.3 47.6 +1.7 1.497
September 43.4 45.0 -1.6 1.437
October 38.7 41.1 -2.4 1.331
November 36.6 35.6 +1.0 1.268
December 32.9 33.9 -1.0 1.351
Jan 2009 35.6 34.4 +1.2 1.326
February 35.8 33.5 +2.3 1.303
March 36.3 33.9 +2.4 1.306
April 40.1 36.8 +3.3 1.318
May 42.8 40.7 +2.1 1.365
June 44.8 42.6 +2.2 1.401
July 48.9 46.3 +2.6 1.409
August 52.9 48.2 +4.7 1.426
September 52.6 49.3 +3.3 1.455
October 55.7 50.7 +5.0 1.489
November 53.6 51.2 +2.4 1.491
December 55.9 51.6 +4.3 1.459

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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