PMI Data Show Big Swing in Europe’s Favor

May 4, 2011

In January of this year, the United States purchasing manager survey indices in both manufacturing and services exceeded their Euroland counterparts by 3.5 points each.  Just three months later, it is Euroland’s service sector that enjoys a 3.5-point advantage over the United States, and the spread in manufacturing has narrowed by 1.1 points to +2.4 in America’s favor.  The sum of the two spreads, shown in the right-most column below shifted from +7.0 in January to +5.3 in February, +3.8 in March and minus 1.1 last month.  In April, the euro area enjoyed its greatest service-sector advantage vis-a-vis the United States since December 2009 and its best overall standing since August 2010.

The April U.S. services data are much weaker than analysts predicted.  The overall index of 52.8 showed the smallest expansion rate (i.e., increment above 50) since August.  The index measuring sales was at the weakest level since December 2009.  An ominous sign for Friday’s labor report is that the jobs index was at its weakest point since September. 

Europe’s services PMI index was two-tenths less than a preliminary estimate and roughly in line with expectations prior to that initial release, and the composite European index including manufacturing as well as services was at the second highest level since mid-2007.  The peak was set in February of this year.  Expressed in the U.S. fashion of annualized growth, it appears that euro area GDP probably expanded 3.0% in the first quarter and sustained that pace in April.  The initial GDP report hasn’t been released for Euroland, but U.S. growth was reported last Thursday at just 1.75% and seems to have lost, not gained, momentum in the early stage of the second quarter.  Two drags are the very elevated cost of fuel and approaching monetary and fiscal restraint.  Chairman Bernanke’s assertion at last week’s press conference that an end to QE2 will not constitute monetary tightening has its share of doubters.

Europe’s data mask a widening difference in the dynamism of Germany and France in the troubled peripherals.  While Europe’s dual speed economy is reflected in bond premiums, the euro has aligned itself with the best running economies of the common currency area rather than a weighted average of the regions underlying economic fundamentals.

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
Feb 59.7 56.8 +2.9 61.4 59.0 +2.4 +5.3
March 57.3 57.2 +0.1 61.2 57.5 +3.7 +3.8
April 52.8 56.7 -3.5 60.4 58.0 +2.4 -1.1

Copyright 2011 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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