Factory PMI Results: U.S. Down and Euroland Up

December 1, 2010

The U.S. minus euro area purchasing managers survey in manufacturing fell to 1.3 points in November from 2.3 points in October, as the U.S. index slid by 0.3 points and Euroland’s index rose 0.7 points.  Average readings in October-November of 56.8 in the states and 55.0 in Euroland signify solid conditions in each region heading into 2011.  However, both reports has potential problems to watch.  In the U.S. release, the key orders and production components declined by 2.3 points and 7.7 points between October and November.  The worrisome element of the euro area data remains the widely different speeds of Germany (58.1), France (57.9) and the Netherlands (56.5) on the one hand and the sputtering conditions found in Italy (52.0), Ireland (51.2), Spain (50.0) and Greece (43.9) on the other.  The higher the reading the better, and a score of 50 delineates contracting activity from expansion.  Both reports, moreover, showcased nascent price pressures.  Although somewhat lower than in October, the U.S. prices index printed at 69.5, still quite a bit above 50.  Several of the European PMI surveys noted intensifying input price pressures that firms have not been able to pass on to final consumers. 

On a monthly average basis, the dollar rose just 1.5% in November, masking a 7.3% end-month to end-month advance.  If the dollar continues to appreciate into the 1.20s and closer to its 2010 high of 1.1878 per euro reached in June, I expect the manufacturing PMI spread to swing below zero.

In conjunction with other U.S. data released today, the PMI figures support the perception that last spring’s soft patch in the recovery is now in the past.  The ADP estimate of private employment, 93K after an upwardly revised 82K in October, suggests that Friday’s Labor Department monthly jobs report will show an increase of at least 150K and maybe even more than 200K.  U.S. productivity remains stellar, having risen 3.5% in 2009 and by 4.2% in January-September from a year earlier.  Unit labor costs, which dropped 1.6% in 2009, were 1.1% lower in 3Q10 than a year earlier.

Euroland has been stigmatized by the view that the currency union is too diverse in terms of economic performance to support a one-size-fits-all monetary policy.  The PMI data released today do not discredit that concern, and the more that investors fret, the more self-fulfilling their worry becomes because interest rates in the peripheral members are far above rate levels in Germany.  Today’s been a day of consolidation in the key EUR/USD relationship, but statistics released today point to more dollar appreciation and euro depreciation in the short run.

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
August 56.3 55.1 +1.2 1.288
September 54.4 53.7 +0.7 1.308
October 56.9 54.6 +2.3 1.389
November 56.6 55.3 +1.3 1.368

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

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