Smallest U.S. Minus Euroland PMI-Mf’g Spread in Twelve Months

March 1, 2010

Although good for building national pride, a strengthening dollar creates new challenges of U.S. exporters.  A near-doubling of the U.S. versus euro area PMI differential in manufacturing in January had been surprising in light of the faltering euro, and alas turned out to be short-lived.  More than the total of January’s improvement was reversed last month. The spread narrowed 3.7 points, split evenly between a decline in the U.S. reading and an increase in Euroland’s.  Manufacturing activity continues to expand respectably in both regions, attested by scores that were comfortably above the 50-breakeven levels in these diffusion indices.  But the U.S. second derivative (change in the rate of change, or momentum) was negative, while Euroland’s second derivative was positive.  The U.S. sub-components for production and orders dropped by 7.8 and 6.4 points, while Euroland’s production index increased 0.9 points.  The 1.8-point increase in the Euroland overall PMI reading masks diverse trends among its four largest member countries.  The Spanish and German indices increased by 3.8 and 3.5 points, while the French and Italian gauges slid 0.5 and 0.1 points.  The German, French, and Italian indices were above 50, and Spain’s 49.1 reading was at a 25-month high.  The U.S. has emerged from recession with internally-generated demand, whole Europe remains dependent on exports.  That pattern sustains unstable current account imbalances.

Mf’g PMI’s U.S. 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
February 35.7 33.5 +2.2 1.303
March 36.4 33.9 +2.5 1.306
April 40.4 36.8 +3.2 1.318
May 43.2 40.7 +2.5 1.365
June 45.3 42.6 +2.7 1.401
July 49.1 46.3 +2.8 1.409
August 52.8 48.2 +4.6 1.426
September 52.4 49.3 +3.1 1.455
October 55.2 50.7 +4.5 1.489
November 53.7 51.2 +2.5 1.491
December 54.9 51.6 +3.3 1.459
Jan 2010 58.4 52.4 +6.0 1.409
February 56.5 54.2 +2.3 1.368

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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