U.S. Advantage in Service Sector Activity Trimmed

December 5, 2011

The U.S. Institute of Supply Management reported a non-manufacturing purchasing managers score of 52.0 in November, 1.6 points less than forecast and 0.9 points lower than October’s reading.  In Euroland, by contrast, the service-sector PMI rose 1.1 points to 47.5.  Such constituted an upward revision from a preliminary estimate of 47.2 and beat initial estimates by analysts of 46.1.  The U.S. minus Euroland services PMI spread of 4.5 points was similar to September’s 4.2-point differential but down two points from October’s 6.5-point spread.  This lessening advantage neutralized America’s widening relative position reported last week in manufacturing.  The 10.8-point sum of the two spreads was 0.6 points wider than than October’s sum, but since services constitute a larger component of activity than manufacturing, the overall performance of the U.S. and Euroland economies in fact moved in tandem last month, neither widening nor cutting America’s advantage to any measurable degree.

The U.S. economy is still expanding.  Both the manufacturing and service-sector PMIs remain above 50.  The last time the services index was below that break-even threshold was in December 2009.  The U.S. sales component advanced by 2.4 points last month to a healthy 56.2 reading, and service-sector orders went up 0.6 to 53.0.   A 4.4-point drop in the jobs index was the main drag but belied better-than-expected labor market data reported in other indicators.

Euroland activity contracted last quarter, and the likelihood of a recession has even been conceded by the hawkish ECB Governing Council.  The euro area’s service-sector PMI posted a third straight sub-50 result despite ticking higher for the first time since March.  The sister index for manufacturing has been less than 50 for the last four reported months and has decreased seven straight times.  All four of the euro area’s four largest economies has sub-50 composite PMI readings for the first time since July 2009, and Spain (36.8) and Italy (44.5) had composite readings that depict a severe downturn.  Each of those economies appears likely to post annualized GDP growth in 4Q11 of minus 4.0% or worse.  Things are not going to improve for a while even if the EU agrees to a credible plan to fix the debt crisis at the coming summit.  Failing such a plan, the recession will intensify.

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 54.2 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 -3.9 60.4 58.0 +2.4 -1.5
May 54.6 56.0 -1.4 53.5 54.6 -1.1 -2.5
June 53.3 53.7 -0.4 55.3 52.0 +3.3 +2.9
July 52.7 51.6 +1.1 50.9 50.4 +0.5 +1.6
August 53.3 51.5 +1.8 50.6 49.0 +1.6 +3.4
Sept 53.0 48.8 +4.2 51.6 48.5 +3.1 +7.3
October 52.9 46.4 +6.5 50.8 47.1 +3.7 +10.2
November 52.0 47.5 +4.5 52.7 46.4 +6.3 +10.8

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

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