PMIs Show a Further Convergence of the U.S. and Ezone Economies

July 3, 2013

The sum of the manufacturing and service-sector purchasing manager survey differentials fell for a fourth straight time in June and, at +6.0 points, was more than nine points narrower than last October’s peak width.  That’s the main takeaway from today’s service-sector figures.

The U.S. service-sector PMI printed at 52.2, almost two points less than forecast, 1.5 points less than in May and the weakest reading, and thus lowest rate of expansion, since February 2010.  If Fed officials only look at the U.S. labor market, this shouldn’t matter because the jobs component of the survey rebounded 4.6 points to a decent 54.7.  Moreover, today’s ADP estimate of June private jobs growth (+188K) was nearly 30K better than assumed, and new jobless insurance claims remained below 350K last week.  But one has to wonder how officials can not help but be influenced in a cautious direction by June versus May declines of 4.8 points in sales and 5.2 points in new business. 

The euro area’s revised service-sector PMI reading of 48.3 was 0.3 points below the preliminary figure but still 0.8 points higher than initially predicted by analysts.  48.3 represents a 5-month high.  Since September 2011, Euroland’s service-sector PMI has been as high as the 50 threshold between expansion and contraction in just a single month, January 2012, but these data support the view that after seven straight quarters of GDP contraction, the recession is starting to find a bottom.  Looking forward, the problem is that while lessening rates of contraction can be seen in the peripherals along with lessening business pessimism, the trend in Germany, Euroland’s go-to economic driver, is worsening.  Germany’s service-sector PMI was only 50.4 in June and averaged 49.9 in the second quarter after a mean of 53.8 in 1Q.  The June service-sector PMI readings in the second, third, and fourth largest Ezone economies were each still below 50 at 47.2 in France, 45.8 in Italy, and 47.8 in Spain.

PMIs U.S. Ezone   U.S. Ezone   Sum of
  Services Services Spread Mf’g Mf’g Spread Spreads
Jan 2012 56.8 50.4 +6.4 54.1 48.8 +5.3 +10.9
Feb 56.1 48.8 +7.3 51.9 49.0 +2.9 +10.2
March 55.0 49.2 +5.8 53.3 47.7 +5.6 +11.4
April 53.7 46.9 +6.8 54.1 45.9 +8.2 +15.0
May 54.1 46.7 +7.4 52.5 45.1 +7.4 +14.8
June 52.7 47.1 +5.6 50.2 45.1 +5.1 +10.7
July 52.9 47.9 +5.0 50.5 44.0 +6.5 +11.5
August 54.3 47.2 +7.1 50.7 45.1 +5.6 +12.7
Sept 55.2 46.1 +9.1 51.6 46.1 +5.5 +14.6
October 54.8 46.0 +8.8 51.7 45.4 +6.3 +15.1
November 54.8 46.7 +8.1 49.9 46.2 +3.7 +11.8
December 55.7 47.8 +7.9 50.2 46.1 +4.1 +12.0
Jan 2013 55.2 48.6 +6.6 53.1 47.9 +5.2 +11.8
February 56.0 47.9 +8.1 54.2 47.9 +6.3 +14.4
March 54.4 46.4 +8.0 51.3 46.8 +4.5 +12.5
April 53.1 47.0 +6.1 50.7 46.7 +4.0 +10.1
May 53.7 47.2 +6.5 49.0 48.3 +0.7 +7.2
June 52.2 48.3 +3.9 50.9 48.8 +2.1 +6.0

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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