U.S. Enjoys Advantage over Euroland in Manufacturing for Now at Least

October 3, 2011

The U.S. purchasing managers index rose a whole point to 51.6 in September, averting a signal of contracting activity.  The last sub-50 reading occurred in July 2009.  Readings below 50.0 imply contraction.  The component for production increased by 2.6 points to 51.6, while that for jobs rose 2.0 points to 53.8.  Orders were unchanged at 49.6, indicating a small reduction in new business.

Euroland’s comparable PMI fell by a half point to 48.5.  The first sub-50 reading in 23 months occurred in August.  Holland (48.9), Italy (48.3), France (48.2), Ireland (47.3), Spain (43.7) and Greece (43.2) all reported sub-50 results, while Germany’s 50.3 score showed that even the biggest economy in the common currency area is in danger of succumbing to the pull of regional recession. 

The spread between the U.S. and euro area manufacturing PMIs is very sensitive to the EUR/USD relationship.  Over the past fifteen months, six lead changes have occurred in the PMI differential as shown below.  The spread has occillated from minus 0.4 in September 2010 to +3.7 six months later in March 2011, then back to minus 1.1 in May, +3.3 in June, +0.5 in July and +3.1 last month.  The euro averaged $1.3771 last month compared to a 2Q11 value of $1.4388.  It is now 3.6% lower than its mean last month and 7.8% weaker than its 2Q mean, a movement that suggests the PMI spread will be narrowing in the future.

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 35.7 33.5 +2.2 1.303
March 36.4 33.9 +2.5 1.306
April 40.4 36.8 +3.2 1.318
May 43.2 40.7 +2.5 1.365
June 45.3 42.6 +2.7 1.401
July 49.1 46.3 +2.8 1.409
August 52.8 48.2 +4.6 1.426
September 52.4 49.3 +3.1 1.455
October 55.2 50.7 +4.5 1.489
November 53.7 51.2 +2.5 1.491
December 54.9 51.6 +3.3 1.459
Jan 2010 58.4 52.4 +6.0 1.409
February 57.1 54.2 +2.9 1.368
March 60.4 56.6 +3.8 1.356
April 59.6 57.6 +2.0 1.342
May 57.8 55.8 +2.0 1.255
June 55.3 55.6 -0.3 1.220
July 55.1 56.7 -1.6 1.278
August 55.2 55.1 +0.1 1.288
September 55.3 53.7 -0.4 1.308
October 56.9 54.6 +2.3 1.389
November 58.2 55.3 +2.9 1.368
December 58.5 57.1 +1.4 1.323
Jan 2011 60.8 57.3 +3.5 1.337
February 61.4 59.0 +2.4 1.365
March 61.2 57.5 +3.7 1.400
April 60.4 58.0 +2.4 1.445
May 53.5 54.6 -1.1 1.433
June 55.3 52.0 +3.3 1.438
July 50.9 50.4 +0.5 1.423
August 50.6 49.0 +1.6 1.435
September 51.6 48.5 +3.1 1.377

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

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