U.S. and Ezone Service-Sector December PMIs Compared

January 5, 2011

The differential between last month’s U.S. non-manufacturing purchasing managers index of 57.1 and its euro area counterpart (54.2) favored America by the widest margin since February 2009.  The U.S. index was 2.1 points better in December than in November; in quarterly average terms, such rose 2.5 points between the third and fourth quarters of 2010.  Between November and December, the production, new orders, and prices sub-components advanced very sharply by 6.5, 5.3, and 6.8 points, respectively.  The jobs index, however, fell by 2.2 points to 50.5, suggesting a near stall in growth that is inconsistent with news reported earlier this morning from ADP that suggested an enormous increase last month in private-sector employment and an overall rise in non-farm jobs of at least 200K.  The Labor Department’s monthly jobs report gets released at 13:30 GMT this Friday.

Turning to Europe, a 0.8-point decline in the services PMI to 54.2 reflects increasingly polarized euro area growth.  The German index (59.2) matched November’s result and has not been higher since June 2006.  Germany is expanding twice as rapidly as Euroland as a whole.  The bloc’s second largest economy, France, is performing quite well also.  France’s composite PMI (56.1) exceeded 56.0 for a second straight month, and its services PMI was revised upward by 0.8 points to 54.9, just a tenth of a point less than recorded in November.  Euroland’s other economies are in deepening straits, squeezed by market-mandated fiscal austerity, weak competitiveness, painfully high long-term interest rates, and accelerating input price inflation.  The service-sector PMI readings for Italy, Ireland, and Spain plunged 4.6, 3.4 and 2.1 points between November and December.  Italy’s 50.2 score in December was precariously close to the 50 line of demarcation between expanding and contracting activity, while the Irish and Spanish readings of 47.4 and 46.2 connote budding double-dip recessions.  Greece doesn’t report a services PMI, but its manufacturing index (43.1) had a 43-handle for a third time in a row.

In the following table, the right-most column adds the U.S.-minus-Euroland services and manufacturing spreads algebraically.  This grand sum has been very volatile in recent months, swinging from -3.2 in August to +3.3 in October, +0.9 in November and +2.8 last month.  Especially since services constitute more than twice as large a share of GDP as does manufacturing, momentum clearly favors the United StatesThe dollar presently is 2.1% stronger than its December 31st low and up 2.7% from its full-December trough, but the euro is still trading 10.6% above its June 2010 low of $1.1878.

PMIs U.S. Ezone   U.S. Ezone   Sum of
  Services Services Spread Mf’g Mf’g Spread Spreads
Feb 2009 42.1 39.2 +2.9 35.7 33.5 +2.2 +5.1
March 41.2 40.9 +0.3 36.4 33.9 +2.5 +2.8
April 43.9 43.8 +0.1 40.4 36.8 +3.6 +3.7
May 44.5 44.8 -0.3 43.2 40.7 +2.5 +2.2
June 46.3 44.7 +1.6 45.3 42.6 +2.7 +4.3
July 46.7 45.7 +1.0 49.1 46.3 +2.8 +3.8
August 48.2 49.9 -1.7 52.8 48.2 +4.6 +2.9
Sept 50.1 50.9 -0.8 52.4 49.3 +3.1 +2.3
October 50.1 52.6 -2.5 55.2 50.7 +4.5 +2.0
November 48.4 53.0 -4.6 53.7 51.2 +2.5 -2.1
December 49.8 53.6 -3.8 54.9 51.6 +3.3 -0.5
Jan 2010 50.5 52.5 -2.0 58.4 52.4 +6.0 +4.0
Feb 53.0 51.8 +1.2 56.5 54.2 +2.3 +3.5
March 55.4 54.1 +1.3 59.6 56.6 +3.0 +4.3
April 55.4 55.6 -0.2 60.4 57.6 +2.8 +2.6
May 55.4 56.2 -0.8 59.7 55.8 +3.9 +3.1
June 53.8 55.5 -1.7 56.2 55.6 +0.6 -1.1
July 54.3 55.8 -1.5 55.5 56.7 -1.2 -2.7
August 51.5 55.9 -4.4 56.3 55.1 +1.2 -3.2
Sept 53.2 54.1 -0.9 54.4 53.7 +0.7 -0.2
October 54.3 53.3 +1.0 56.9 54.6 +2.3 +3.3
November 55.0 55.4 -0.4 56.6 55.3 +1.3 +0.9
December 57.1 54.2 +2.9 57.0 57.1 -0.1 +2.8

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

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