U.S Advantage Versus Euro Area in Manufacturing Narrowed Last Month
October 1, 2009
The differential between the U.S. and euro area manufacturing PMI readings narrowed for the first time since May during September. The U.S. minus Euroland spread has ranged between 2.1 points and 4.7 points over the last eight months, a much more stable pattern than during the previous nine months. Figures in the right-most column of the table below represent monthly average Euro/dollar exchange rates. After the euro became very expensive by early 2008, the U.S. manufacturing sector improved relative to Europe’s. That’s what one would expect to happen in lagged fashion to improved relative U.S. competitiveness. Manufacturing sectors are now responding to the euro’s retreat from $1.577 in July 2008 to a monthly mean of $1.303 in February 2009. Renewed strength in the euro over this past summer has not yet given way to a further significant widening of the PMI spread, but that’s a future possibility.
| Mf’g PMI’s | United States | Euroland | Spread | EUR/USD |
| Feb 2008 | 48.8 | 52.3 | -3.5 | 1.475 |
| March | 49.0 | 52.0 | -3.0 | 1.553 |
| April | 48.6 | 50.7 | -2.1 | 1.574 |
| May | 49.3 | 50.6 | -1.3 | 1.555 |
| June | 49.5 | 49.2 | +0.3 | 1.557 |
| July | 49.5 | 47.4 | +2.1 | 1.577 |
| August | 49.3 | 47.6 | +1.7 | 1.497 |
| September | 43.4 | 45.0 | -1.6 | 1.437 |
| October | 38.7 | 41.1 | -2.4 | 1.331 |
| November | 36.6 | 35.6 | +1.0 | 1.268 |
| December | 32.9 | 33.9 | -1.0 | 1.351 |
| Jan 2009 | 35.6 | 34.4 | +1.2 | 1.326 |
| Feb 2009 | 35.8 | 33.5 | +2.3 | 1.303 |
| Mar 2009 | 36.3 | 33.9 | +2.4 | 1.306 |
| Apr 2009 | 40.1 | 36.8 | +3.3 | 1.318 |
| May 2009 | 42.8 | 40.7 | +2.1 | 1.365 |
| Jun 2009 | 44.8 | 42.6 | +2.2 | 1.401 |
| Jul 2009 | 48.9 | 46.3 | +2.6 | 1.409 |
| Aug 2009 | 52.9 | 48.2 | +4.7 | 1.426 |
| Sept 2009 | 52.6 | 49.3 | +3.3 | 1.455 |
The U.S. index printed above the 50 line of demarcation between expansion and contraction in both August and September, whereas Euroland’s PMI still lies fractionally beneath 50. Nonetheless, both the output and orders sub-components of the Euroland PMI did exceed 50 in August and September. In the U.S. release, although orders (off 4.1 points) and production (down6.6 points) dropped appreciably in September, their respective levels of 60.8 and 55.7 remained comfortably above 50. Both the U.S. and Euroland reports are consistent with probable positive economic growth last quarter, but the recoveries are associated with dangers that are keeping ECB and Fed policies in a very accommodative posture.
Copyright Larry Greenberg 2009. All rights reserved. No secondary distribution without express permission.
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