Euro Area PMI-Services Advantage Versus United States Lessened in December

January 6, 2010

The U.S. services purchasing managers index climbed 1.4 points to 50.1 in December, largely on gains of 3.8 points in production and 2.4 points in jobs.  Euroland’s comparable index increased just 0.6 points to 53.6, trimming the spread between the two series to minus 3.5 points from minus 4.3 points in November.  In one important respect, however, Euroland’s was a healthier report.  The U.S. orders component fell back 3.0 points to 52.1, whereas Euroland new business improved to a 25-month high.  Within the euro area, the service PMIs rose by 1.3, 4.1, and 1.5 points to 52.7, 53.9, and 48.3 in Germany, Italy and Ireland, but the French and Spanish measures fell 2.2 points and 1.1 points to 58.7 and 45.0.  The table below documents trends in both manufacturing and the non-manufacturing PMIs since early 2008.  The right-most column adds the two spreads algebraically, a quick-but-dirty gauge that understates the importance of services which comprise more than half of GDP.  The sum of the two spreads in December, +0.8, has the lowest absolute value since September 2008.  It gives the U.S. a slight advantage, but in fact the advantage is even smaller, since Euroland is doing better in services but worse than the United States in manufacturing. 

Euroland would enjoy a clear advantage if the dollar had not weakened so much of 2009.  Depreciation of the dollar against the euro helps U.S. manufacturers be competitive vis-a-vis Europe.  Economic recoveries in both regions have benefited from fiscal support, low interest rates, and lessening inventory reductions.  To be sustained as these supports fade in the future, final demand must continue to grow.  In that regard, the slowing rate of expansion in U.S. orders last month raises a concern.

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
December 50.1 53.6 -3.5 55.9 51.6 +4.3 +0.8

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

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