U.S. and Euro Area Service Sector Purchasing Manager Survey Results

August 3, 2011

Service sector PMI readings in July were below original expectations in both the United States and Euroland.  In a weakening economy, the number of statistics that lie below expectations tends to outpace the number of positive surprises because the starting point of forecasting is an extrapolation of recent trend.

Improved sales in July lent some resilience to the U.S. service sector purchasing managers index, which nonetheless still dropped by 0.6 points overall from the month before.  In the latest reported month, the components for new business, jobs, and prices declined by 1.9, 1.6, and 4.3 points.  The U.S. reading of 52.7 in July was 1.1 points above its Euroland counterpart of 51.6.  From a reading of 52.8 in April, the U.S. index has edged down just a tenth of a point, while Euroland’s service sector PMI over those three months has declined by 5.1 points from 56.7.  The service sectors of Euroland’s third and fourth largest economies are moreover contracting, as attested by the sub-50 readings of 48.6 in Italy and 46.5 in Spain.  And in Germany and France, the service indices posted month-on-month drops in the four months since March of 7.2 and 6.2 points to 52.9 and 54.2 in July.

Typical of periods when economies transition from expansion to recession, manufacturing has deteriorated more abruptly than services in both the United States and euro area, but in contrast to what one observes in services, the United States has shown less resilience in manufacturing than Euroland.  Between March and July, the U.S. manufacturing PMI fell 10.3 points to 50.9, and the euro area’s factory PMI declined by 7.1 points to 50.9.  The right-most column below, an algebraic sum of the services and manufacturing spreads, had a value of +1.6 in July compared to +7.0 six months earlier in January, indicating that full economic growth slowed more quickly in the U.S. than in Continental Europe between January and July of this year

Other key advanced economies are also worse off than six months ago.  Britain’s service sector PMI unexpectedly rose by 1.5 points in July to a reading of 55.4 and was even 0.9 points higher than in January.  However, the manufacturing PMI in that economy dipped to 49.1, lowest since June 2009 and 12.4 points below the value six months earlier in January.  Japan’s services PMI of 45.3 in July was a tenth less than the June reading and 5.1 points lower than the score of 50.4 in January.  The composite Japanese PMI, embodying both services and manufacturing, was 47.7 last month compared to 50.9 in January.

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 52.7 51.8 +0.9 57.1 54.2 +2.9 +3.8
March 54.1 54.1 0.0 60.4 56.6 +3.8 +3.8
April 54.6 55.6 -1.0 59.6 57.6 +2.0 +1.0
May 54.8 56.2 -1.4 57.8 55.8 +2.0 +0.6
June 53.5 55.5 -2.0 55.3 55.6 -0.3 -2.3
July 53.7 55.8 -2.1 55.1 56.7 -1.6 -3.7
August 52.8 55.9 -3.0 55.2 55.1 +0.1 -2.9
Sept 53.9 54.1 -0.2 55.3 53.7 -0.4 -0.6
October 54.6 53.3 +1.3 56.9 54.6 +2.3 +3.6
November 56.0 55.4 +0.6 58.2 55.3 +2.9 +3.5
December 57.1 54.2 +2.9 58.5 57.1 +1.4 +4.3
Jan 2011 59.4 55.9 +3.5 60.8 57.3 +3.5 +7.0
Feb 59.7 56.8 +2.9 61.4 59.0 +2.4 +5.3
March 57.3 57.2 +0.1 61.2 57.5 +3.7 +3.8
April 52.8 56.7 -3.9 60.4 58.0 +2.4 -1.5
May 54.6 56.0 -1.4 53.5 54.6 -1.1 -2.5
June 53.3 53.7 -0.4 55.3 52.0 +3.3 +2.9
July 52.7 51.6 +1.1 50.9 50.4 +0.5 +1.6

Copyright 2011 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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