Service Sector PMI Worsened Considerably More in U.S. Than Euro Area

January 6, 2009

  U.S. Ezone   U.S. Ezone   Sum of
  Services Services Spread Mf’g Mf’g Spread Spreads
January 44.6 50.6 -6.0 50.7 52.8 -2.1 -8.1
February 49.3 52.3 -3.0 48.3 52.3 -4.0 -7.0
March 49.6 51.6 -2.0 48.6 52.0 -3.4 -5.4
April 52.0 52.0 0.0 48.6 50.7 -2.1 -2.1
May 51.7 50.6 +1.1 49.6 50.6 -1.0 +0.1
June 48.2 49.1 -0.9 50.2 49.2 +1.0 +0.1
July 49.5 48.3 +1.2 50.0 47.4 +2.6 +3.8
August 50.6 48.5 +2.1 49.9 47.6 +2.3 +4.4
Sept 50.2 48.4 1.8 43.5 45.0 -1.5 +0.3
October 44.4 45.8 -1.4 38.9 41.1 -2.2 -3.6
November 37.3 42.5 -5.2 36.2 35.6 +0.6 -4.6
December 40.6 42.1 -1.5 32.4 33.9 -1.5 -3.0

 

According to December purchasing manager survey figures released today, activity in services and the whole Euroland economy weakened relative to conditions in the United States. An opposite comparative shift had occurred in November, leaving the spread between the two economies about the same as such was in October, only with activity weakening much more sharply for both areas than two months earlier. The U.S. services PMI (40.6) was surprisingly higher than in November but still 3.8 points lower than in October. Euroland’s index slid another 0.4 points last month and fell by 3.7 points between October and December. The further below 50 that these indices are, the more deeply economic activity is contracting. While the U.S. ranking was closer to Euroland’s in December than in November, both economies were contracting sharply at the end of last quarter, and U.S. activity was still performing worse than its Euroland counterpart in the services sector.

Manufacturing sector PMI’s released last Friday revealed U.S. and Euroland indices each in the low 30’s, with the U.S. score moving back to a lower value than the reading for Euroland. The final column in the table above adds the manufacturing and service-sector spreads. Their sum in December, minus 3.0, was less disadvantageous to the United States than either the totals of -4.6 in November or -3.6 in October. Since services account for somewhat more than twice as big a share of GDP as does manufacturing, the relative improvement in the U.S. ranking is understated in the table above.

Market prices thrive on what’s happening at the margin. These PMI figures support the dollar’s rally against the euro so far this month. But the big picture is that severe recessions are under way in both the United States and Europe, and the data do not point a meaningful divergence of economic growth or interest rates between the two regions.

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