PMIs Show Largest U.S. Edge Against Euroland in at Least Two Years

February 3, 2011

In contrast to the view of sluggish growth among advanced economies, the United States and Euroland reported strong manufacturing and non-manufacturing purchasing manager survey results for January.  A score of 50 is neutral.  Above that level connotes expanding activity in these diffusion indices, and results below 50 signify contraction.  Back in April 2009, none of the four broad measures was as high as 44, but none of them was as low as 55.0 last month.

The rate of expansion has been quickening in both the United States and Europe, but the improvement has been more pronounced in the United States.  Comparisons between the two regions are gauged in the columns labeled “spread” below.  The 3.5-point spread in the services sector is the U.S. index minus the Euroland index, and it widened 0.6 points to 3.5 in January and favored the United States by 6.5 points more than had been the case five months earlier when the spread was minus 3.0.  The manufacturing spread last month was also +3.5, so America’s advantage relative to the euro area is balanced evenly between manufacturing and service industries.  Last July, Euroland enjoyed advantages over the United States of 2.1 points in services and 1.6 points in manufacturing.  The sum of these spreads, which was minus 3.7 back then, swung 10.7 points in the space of a half year to +7.0 in January 2011.

The U.S. service-sector PMI released today showed on-month increases of 3.5% in new orders, 2.6 points in prices, 1.9 points in jobs and 1.7 points in activity.  That’s a very broad improvement.  Euroland’s overall service sector score of 55.9 masks sub-50 readings of 49.9 in Italy and 49.3 in Spain.  These were counterbalanced by a German reading of 60.3 and a French score of 57.8.  Those levels were 1.1 and 2.9 points higher than those recorded in December.  It’s just the beginning of a new year, and the strength of January may settle back.  However, with commodity price pressures mounting, it’s looking like a better-than even bet that both the ECB and Fed may begin raising key interest rates before next January.  It’s been a long time since one could imagine rate tightening within a year by either of these central banks.

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 52.7 51.8 +0.9 57.1 54.2 +2.9 +3.8
March 54.1 54.1 0.0 60.4 56.6 +3.8 +3.8
April 54.6 55.6 -1.0 59.6 57.6 +2.0 +1.0
May 54.8 56.2 -1.4 57.8 55.8 +2.0 +0.6
June 53.5 55.5 -2.0 55.3 55.6 -0.3 -2.3
July 53.7 55.8 -2.1 55.1 56.7 -1.6 -3.7
August 52.8 55.9 -3.0 55.2 55.1 +0.1 -2.9
Sept 53.9 54.1 -0.2 55.3 53.7 -0.4 -0.6
October 54.6 53.3 +1.3 56.9 54.6 +2.3 +3.6
November 56.0 55.4 +0.6 58.2 55.3 +2.9 +3.5
December 57.1 54.2 +2.9 58.5 57.1 +1.4 +4.3
Jan 2011 59.4 55.9 +3.5 60.8 57.3 +3.5 +7.0

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

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