U.S. Factory PMI Reading Below Euro Area Score for First Time in 19 Months

August 2, 2010

Manufacturing activity expanded at a slower rate, while the growth in Euroland manufacturing accelerated last month.  The dichotomy in those trends makes sense in light of the the dollar’s 27.5% advance from 1.5149 per euro in late November to 1.1878 in early June.  Both regions had solid above-50 readings between 55 and 57, but Europe’s 56.7 was above America’s score of 55.5.  The last time Europe commanded the edge was in the final month of 2008, and the spread between the two readings has shifted 7.2 points from +6.0 points to minus 1.2 points over the past six reported months.  In that span, the U.S. index fell by 2.9 points, while Euroland’s rose by 4.3 points.  The details of the U.S. report were worse than the overall 0.7-point decline, as the orders and production sub-indices fell between June and July by 5.0 points and 4.4 points following respective declines of 7.2 points and 5.2 points between May and June.

Not all euro area members have shared in the regions upwardly trending manufacturing purchasing managers index. A 2.8-point jump in the German PMI to 61.2 accounted for the bulk of the zone’s improvement.  The French index fell 0.9 points to a ten-month low, and Italy’s reading of 54.4 was merely a tenth of a point above the June level.  The Spanish index, although up by 0.4, signified weak positive growth at 51.6, and the Greek index of 45.3 after 42.2 in June and 41.8 in May confirms a continuing recession in that troubled economy.  Ireland’s reading was just 51.4, but the Dutch index of 55.7 conveys healthy expansion.

Among European economies not sharing the common currency, Britain’s PMI fell less than assumed — just 0.3 points to a resilient 57.3.  The Swiss index touched a record high of 66.9, and the Swedish reading of 64.2 also surpassed 60.0.  In the Pacific Rim, China’s PMI dipped a full point to 49.4, the first sub-50 result since March 2009, and Japan reported a four-month low of 52.8, down from 53.9 in June and a four-year high of 54.7 in May.  Forecasters have been counting on strong emerging market activity to remain decoupled from the fragility of advanced economies and a major engine of world economic growth.  Incredibly, world GDP, which posted on-year growth of over 4.0% until the third quarter of 2008, was again above that threshold in the first quarter of 2010.  In between, such had dived to negative 2-something percent in the first half of 2009, thus tracing a classic V-shaped business cycle.  But will this persist?  It seems unlikely.

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
March 59.6 56.6 +3.0 1.356
April 60.4 57.6 +2.8 1.342
May 59.7 55.8 +3.9 1.255
June 56.2 55.6 +0.6 1.220
July 55.5 56.7 -1.2 1.278

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

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