U.S.-Ezone Manufacturing Spread Swings Sharply in America’s favor

July 1, 2011

In June, the U.S. factory purchasing managers index climbed 1.8 points to 55.3, while its Euroland counterpart weakened by 2.6 points to 52.0.  U.S. manufacturing thus grew faster than Euroland’s for the eighth time in the last nine months, the one exception occurring in May when the latter index surpassed the U.S. gauge by 1.1 points. 

The United States was one of very few economies whose purchasing managers survey results in manufacturing surprised analysts on the upside.  The improved U.S. report was led by increases of 1.7 points in the employment sub-index and 5.4 points in inventories, which had slipped under 50 in May.  Output and orders increased by a lesser 0.5 and 0.6 points, respectively.  Pricing pressure receded significantly, as that index fell from 76.5 to 68.0.

Europe’s deteriorating conditions last month were widely distributed.  Between May and June, the PMI readings fell by 3.1 points in Germany, 3.0 points in Holland, 2.9 points in Italy, 2.4 points in France, 2.0 points in Ireland, and 0.9 points in Spain.  The Greek index rose by a full point but remained well below the no change threshold of 50.0 at 45.5.  Spain (47.3), Italy (49.9), and Ireland (49.8) also recorded readings below 50.  Germany scored a 54.5.  The reports reflected weak domestic demand and export growth that had slowed considerably.  Input cost pressures have ebbed a bit but remain a significant drag on manufacturing.

One can see from the table below that there is a considerable amount of monthly noise in the differential between the U.S. and Ezone factory PMI indices. But broadly speaking, the spread is responsive to significant shifts in the EUR/USD exchange rate and thus relative competitiveness.  When the euro’s monthly averages were weaker than $1.30 in June, July and August of 2010, the spread tended to favor Euroland by a slight margin, but the United States has usually enjoyed better conditions when the euro is above $1.40 such as now.  That’s why a 1.1-point differential in favor of Euroland in May had seemed to be such an anomaly.

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 57.1 54.2 +2.9 1.368
March 60.4 56.6 +3.8 1.356
April 59.6 57.6 +2.0 1.342
May 57.8 55.8 +2.0 1.255
June 55.3 55.6 -0.3 1.220
July 55.1 56.7 -1.6 1.278
August 55.2 55.1 +0.1 1.288
September 55.3 53.7 -0.4 1.308
October 56.9 54.6 +2.3 1.389
November 58.2 55.3 +2.9 1.368
December 58.5 57.1 +1.4 1.323
Jan 2011 60.8 57.3 +3.5 1.337
February 61.4 59.0 +2.4 1.365
March 61.2 57.5 +3.7 1.400
April 60.4 58.0 +2.4 1.445
May 53.5 54.6 -1.1 1.433
June 55.3 52.0 +3.3 1.438

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

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