Pronounced Convergence Last Month in U.S. and Ezone Manufacturing Conditions
June 3, 2013
The U.S. and euro area purchasing managers indices were both below 50.0 in May. This was the first month since November in which both economies experienced a contraction of manufacturing and just the second such instance since August 2009. This development caught analysts by surprise. They had initially predicted a U.S. reading of about 50.5 and a score of 47.2 for Euroland. Instead, the U.S. PMI index fell by 1.7 points to 49.0, whereas Euroland’s reading of 48.3 was 1.6 points better than in April. The resulting 0.7-point differential between the U.S. PMI of 49.0 and Euroland’s of 38.3 was the tiniest U.S. advantage since July 2011. The U.S. reading was also worse than Japan’s of 51.5 and Britain’s of 51.3. The truth about how soon the Fed might taper quantitative easing hinges less upon what FOMC officials are predisposed to do than on whether the U.S. recovery can handle the policy shift. If the U.S. economic reaction function is at all like Japan’s has been for the past twenty years, a lack of tolerance for policy snugging is going to prove problematic.
The swing in the U.S. PMI from above 50 to below that no-change threshold reflected declines in production of 4.9 points to a reading of 48.6 and in orders of 3.5 points to 48.8. The jobs index stagnated at 50.1, and prices fell from 50.0 in April to 49.5 last month. The industrial sectors that contracted in May included plastics and rubber, transportation equipment, chemical products, computer and electronic goods, and primary metals.
Euroland’s lessening rate of contraction in manufacturing was shared by all members countries for which individual PMI reports are available. The indices of Spain, France, Italy, and Germany went up by 3.4, 2.0, 1.8 and 1.3 points. Small improvements of 0.5, 0.4, and 0.3 points occurred in the Netherlands, Austria and Greece. All of these economies had sub-50 readings, however, and the average 47.5 reading in April-May suggests that Euroland GDP likely will contract by 0.2% in the current quarter just as it did last quarter. That’s a 0.9% pace annualized.
| Mfg PMIs | U.S. | Euroland | Spread | EUR/USD |
| Jan 2012 | 54.1 | 48.8 | +5.3 | 1.290 |
| February | 51.9 | 49.0 | +2.9 | 1.323 |
| March | 53.3 | 47.7 | +5.6 | 1.320 |
| April | 54.1 | 45.9 | +8.2 | 1.315 |
| May | 52.5 | 45.1 | +7.4 | 1.280 |
| June | 50.2 | 45.1 | +5.1 | 1.254 |
| July | 50.5 | 44.0 | +6.5 | 1.230 |
| August | 50.7 | 45.1 | +5.6 | 1.255 |
| September | 51.6 | 46.1 | +5.5 | 1.286 |
| October | 51.7 | 45.4 | +6.3 | 1.297 |
| November | 49.9 | 46.2 | +3.7 | 1.283 |
| December | 50.2 | 46.1 | +4.1 | 1.313 |
| Jan 2013 | 53.1 | 47.9 | +5.2 | 1.330 |
| February | 54.2 | 47.9 | +6.3 | 1.334 |
| March | 51.3 | 46.8 | +4.5 | 1.295 |
| April | 50.7 | 46.7 | +4.0 | 1.301 |
| May | 49.0 | 48.3 | +0.7 | 1.299 |
Copyright 2013, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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