October PMI Results Favor United States Over Euro Zone

November 4, 2010

Purchasing managers survey results were more U.S.-advantageous in October than September and in September than August.  The sum of the U.S. minus Euroland manufacturing and services spreads, shown in the right-most column of the table below, was +3.3 in October after minus 0.2 in September and minus 3.2 points in August.  Much of this change reflects the euro’s appreciation in both trade-weighted terms and against the dollar bilaterally.  The factory sector spread, which is more sensitive to the exchange rate than services, moved from minus 4.4 to plus 1.0 and accounted for five-sixths of the 6.5-point swing from minus 3.2 to plus 3.3 in the combined differential.  At 3.3 points, the spread still does not favor the United States as sharply as in the first quarter of 2010 but it’s headed that way.  When identifying which region enjoys the most advantage, it is important not to interpret a lower score as a sign of outright contraction.  All the manufacturing and non-manufacturing PMI readings from both Euroland and the United States were above 50.0 in each of the first ten months of 2010, meaning that activity expanded every month.  The greater a score lies above 50.0, the faster the rate of expansion.  It’s worth noting, too, that each of the October 2010 readings below was higher than comparable readings in October 2009.

PMIs U.S. Ezone   U.S. Ezone   Sum of
  Services Services Spread Mf’g Mf’g Spread Spreads
Feb 2009 42.1 39.2 +2.9 35.7 33.5 +2.2 +5.1
March 41.2 40.9 +0.3 36.4 33.9 +2.5 +2.8
April 43.9 43.8 +0.1 40.4 36.8 +3.6 +3.7
May 44.5 44.8 -0.3 43.2 40.7 +2.5 +2.2
June 46.3 44.7 +1.6 45.3 42.6 +2.7 +4.3
July 46.7 45.7 +1.0 49.1 46.3 +2.8 +3.8
August 48.2 49.9 -1.7 52.8 48.2 +4.6 +2.9
Sept 50.1 50.9 -0.8 52.4 49.3 +3.1 +2.3
October 50.1 52.6 -2.5 55.2 50.7 +4.5 +2.0
November 48.4 53.0 -4.6 53.7 51.2 +2.5 -2.1
December 49.8 53.6 -3.8 54.9 51.6 +3.3 -0.5
Jan 2010 50.5 52.5 -2.0 58.4 52.4 +6.0 +4.0
Feb 53.0 51.8 +1.2 56.5 54.2 +2.3 +3.5
March 55.4 54.1 +1.3 59.6 56.6 +3.0 +4.3
April 55.4 55.6 -0.2 60.4 57.6 +2.8 +2.6
May 55.4 56.2 -0.8 59.7 55.8 +3.9 +3.1
June 53.8 55.5 -1.7 56.2 55.6 +0.6 -1.1
July 54.3 55.8 -1.5 55.5 56.7 -1.2 -2.7
August 51.5 55.9 -4.4 56.3 55.1 +1.2 -3.2
Sept 53.2 54.1 -0.9 54.4 53.7 +0.7 -0.2
October 54.3 53.3 +1.0 56.9 54.6 +2.3 +3.3

Within services, the 1.1-point rise in the U.S. PMI to 54.3 was led by a 5.6-point jump in business activity, analogous to production in a goods-producing sector.  Orders went up by a lesser 1.8 points, and the  jobs element of the report lagged even further with an improvement of just 0.7 points to a value of 50.9, which conveys minimal growth in employment.  Euroland’s latest services PMI score of 53.3 is decent enough but, in comparison to a 55.25 average reading in 3Q10, conveys a clear slowdown in the rate of growth from the second and third quarters.  Moreover, the 53.3 reading masks a polarization of activity between Germany at 56.0 and France (54.8) on the one hand and Italy (51.0), Ireland (50.9) and Spain (46.5) on the other.  Also the French index was 3.2 points below its third-quarter average value.  Only Germany seems to be solidly holding up in the top tier.

The message of these reports is that Fed policy is exporting weaker growth to other advanced economies as well as inflationary pressure to emerging economies.  I imagine the U.S. monetary stance will be an object of major complaint behind closed doors at the G20 summit in South Korea on November 11 but perhaps not much so for public consumption.

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

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