Factory PMI Divergence Widened Last Month between the United States and Euroland
January 4, 2016
Euroland’s manufacturing purchasing managers index rose 0.4 points in December to the highest score, 53.2, since April 2014. In contrast, the ISM reported a 0.4-point further drop in the U.S. factory PMI to 48.2, its lowest level since June 2009, which coincidentally was the final month of America’s Great Recession. The -5.0-point net disadvantage in manufacturing of the U.S. relative to Euroland has not been greater than now since before the financial market crisis began.
U.S. manufacturing contracted in December for a second straight month as attested by the sub-50 factory PMIs in the final two months of 2015. December’s contraction was faster than November’s despite flatter rates of decline in production and orders. The jobs subindex fell 3.2 points to 48.1, while the indices for prices and order backlogs each fell 2.0 points to 33.5 and 41.0, respectively.
In Europe, all eight members for which PMIs were compiled had scores above 50.0. The German, French, Italian, Irish and Greek readings were better in December than November, while those in Austria, The Netherlands, and Spain were above 50 but not as much so in December as in November.
The factory PMI spread shifted adversely by 12.5 points between November 2014 and December 2015. Comparing average EUR/USD values in those two months, the dollar strengthened by 14.4%, making U.S. merchandise exports and import-competing goods significantly less price competitive. In a low inflation global environment, it is far better for one’s currency to depreciate than to appreciate. That’s especially true of the United States because of a lack of foreign debt.
| 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 | 54.3 | 53.2 | +1.1 | 1.366 |
| March | 54.4 | 53.0 | +1.4 | 1.380 |
| April | 55.3 | 53.4 | +1.9 | 1.380 |
| May | 55.6 | 52.2 | +3.4 | 1.374 |
| June | 55.7 | 51.8 | +3.9 | 1.360 |
| July | 56.4 | 51.8 | +4.6 | 1.354 |
| August | 58.1 | 50.7 | +7.4 | 1.332 |
| September | 56.1 | 50.3 | +5.8 | 1.290 |
| October | 57.9 | 50.6 | +7.3 | 1.268 |
| November | 57.6 | 50.1 | +7.5 | 1.247 |
| December | 55.1 | 50.6 | +4.5 | 1.232 |
| Jan 2015 | 53.5 | 51.0 | +2.5 | 1.162 |
| February | 52.9 | 51.0 | +1.9 | 1.135 |
| March | 51.5 | 52.2 | -0.7 | 1.083 |
| April | 51.5 | 52.0 | -0.5 | 1.081 |
| May | 52.8 | 52.2 | +0.6 | 1.116 |
| June | 53.5 | 52.5 | +1.0 | 1.123 |
| July | 52.7 | 52.4 | +0.3 | 1.101 |
| August
September October |
51.1
50.2 50.1 |
52.3
52.0 52.3 |
-1.2
-1.8 -2.2 |
1.114
1.123 1.121 |
| November
December |
48.6
48.2 |
52.8
53.2
|
-4.2
-5.0 |
1.076
1.090 |
Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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