Widely Divergent U.S. and Euroland Manufacturing Conditions

September 2, 2014

Euroland’s manufacturing purchasing managers index fell 1.1 points in August to a 13-month low of 50.7.  The U.S. factory PMI, in contrast, jumped 1.9 points to a 41-month high of 59.0.  Both results were over 50.0, connoting expanding activity.  However, while the euro area expansion has a very weak pulse, U.S. manufacturing has picked up considerable pace since the start of 2014 and is not sprinting.  Manufacturing can be strongly influenced by exchange rate movements, but the dollar appreciation/euro’s depreciation have progressed slowly and so far have not impeded the divergence of the two economies.

In the U.S. survey, both new orders and production sub-indices leaped 3.3 points between July and August to pace the improved report on manufacturing.  Employment dipped 0.1 of a point, and the sub-index for price pressure fell back 1.5 points.

Euroland’s weakness sliced across many members of the common currency union.  The French reading of 46.9 after 47.8 suggests a possible return to recession in the third quarter.  In Italy, which did slip back into the red, the PMI fell 1.2 points to 49.8.  The Spanish and German indices fell by similar 1.1 and 1.0-point increments to 52.8 and 51.4.  A 1.8-point decline in the Dutch PMI to 51.7 left such below 52 as well.  The Greek index went up 1.4 points but, at 50.1, merely signals a manufacturing sector that has stopped contracting.  Austria’s PMI stayed at a lowly 50.9.  The sole bright spot in the Ezone data is Ireland’s 176-month high of 57.3. 

The 8.3-point spread in the U.S.-minus-Euroland PMI differential, shown below, represents an 11.0-point U.S.-favorable swing in the space of seven months and the most advantageous relative U.S. performance in over two years.  The slowdown in Europe’s manufacturing, moreover, hasn’t been limited to the euro area alone.  The British factory PMI fell 2.3 points to a 14-month low of 52.5, Sweden’s dropped 4.2 points to 51.0, and the Czech index burrowed down 2.2 points to an 11-month low of 54.3.

Mfg PMIs U.S. Euroland Spread EUR/USD
Jan 2013 53.1 47.9 +5.2 1.330
February 53.1 47.9 +5.2 1.334
March 51.5 46.8 +4.7 1.295
April 50.0 46.7 +3.3 1.301
May 50.0 48.3 +1.7 1.299
June 52.5 48.8 +3.7 1.319
July 54.9 50.3 +4.6 1.309
August 56.3 51.4 +4.9 1.331
September 56.0 51.1 +4.9 1.335
October 56.6 51.3 +5.3 1.364
November 57.0 51.6 +5.4 1.349
December 56.5 52.7 +3.8 1.370
Jan 2014 51.3 54.0 -2.7 1.361
February 53.2 53.2 0.0 1.366
March 53.7 53.0 +0.7 1.380
April 54.9 53.4 +1.5 1.380
May 55.4 52.2 +3.2 1.374
June 55.3 51.8 +3.5 1.360
July 57.1 51.8 +5.3 1.354
August 59.0 50.7 +8.3 1.332

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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