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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