U.S. and Eurozone Activity Trends Converging Surprisingly Quickly Since November

March 4, 2015

A poll of forecasters conducted each month by The Economist found expectations as recently as February of U.S. GDP growth in 2015 (3.3%) to be almost three times higher than the view toward the euro area (1.2%).  The average forecasts three months earlier were respectively 2.9% and 1.2%.  However, in the table below, which shows the evolution of purchasing manager indices between those two economies, a much more dramatic convergence occurred between November 2014 and February 2015.  Back in November, the U.S. enjoyed a 7.7-point advantage vis-a-vis Euroland in service industries and a similar 7.5-point in manufacturing.  Over the ensuing three months to February, the services PMI spread had narrowed 4.5 points to 3.2 points, and the manufacturing spread dropped by 5.6 points to +1.9 points.  The sum of the two differential was sliced impressively by two-thirds from 15.2 points to 5.1 points in the space of a mere three months. 

Growth in the euro area was 0.9% at an annualized rate last quarter, less than half the 2.2% in the United States.  The euro area should do better this quarter, and it remains to be seen how big an impact winter exerts on the U.S. performance.  Plunging oil prices pose more problem to a producer like the United States than to Euroland.  Euro depreciation is another development that boosts the eurozone while depressing growth in the United States.  Long-term U.S. interest rates are rising relative to those in the euro area because the Fed is preparing to begin raising the federal funds rate within a couple of months, while substantial quantitative stimulus by the European Central Bank begins this month and will not end until September 2016.  Grexit remains a Sword of Damocles over the euro. 

The U.S. non-manufacturing purchasing managers index in February was 0.2 points higher than in January, but the sub-indices for production/sales and new business/orders fell by 2.1 points and 2.8 points.  The main boosts came from increases of 4.8 points in jobs and 4.2 points in prices.

Euroland’s service-sector PMI climbed a full point in February to 53.7 from 52.7.  The French index went up 4.0 points to 53.4, and the German PMI rose by 0.7 points to 54.7.  The indices of Italy, Ireland, and Spain fell by 1.2, 1.1, and 0.5 points but at 50.0, 56.2, and 61.4 were all above the 50 no change level.  For the first time since April 2014, the four largest economies in the common currency area had composite PMI scores above the no change threshold of 50.

PMIs U.S. Ezone   U.S. Ezone   Sum of
  Services Services Spread Mf’g Mf’g Spread Spreads
Jan 2012 56.8 50.4 +6.4 54.1 48.8 +5.3 +10.9
Feb 56.1 48.8 +7.3 51.9 49.0 +2.9 +10.2
March 55.0 49.2 +5.8 53.3 47.7 +5.6 +11.4
April 53.7 46.9 +6.8 54.1 45.9 +8.2 +15.0
May 54.1 46.7 +7.4 52.5 45.1 +7.4 +14.8
June 52.7 47.1 +5.6 50.2 45.1 +5.1 +10.7
July 52.9 47.9 +5.0 50.5 44.0 +6.5 +11.5
August 54.3 47.2 +7.1 50.7 45.1 +5.6 +12.7
Sept 55.2 46.1 +9.1 51.6 46.1 +5.5 +14.6
October 54.8 46.0 +8.8 51.7 45.4 +6.3 +15.1
November 54.8 46.7 +8.1 49.9 46.2 +3.7 +11.8
December 55.7 47.8 +7.9 50.2 46.1 +4.1 +12.0
Jan 2013 55.2 48.6 +6.6 53.1 47.9 +5.2 +11.8
February 54.8 47.9 +8.1 53.1 47.9 +5.2 +13.3
March 54.5 46.4 +8.1 51.5 46.8 +4.7 +12.8
April 53.8 47.0 +6.8 50.0 46.7 +3.3 +10.1
May 54.0 47.2 +6.8 50.0 48.3 +1.7 +8.5
June 53.4 48.3 +5.1 52.5 48.8 +3.7 +8.8
July 55.9 49.8 +6.1 54.9 50.3 +4.6 +10.7
August 57.9 50.7 +7.2 56.3 51.4 +4.9 +12.1
Sept 54.5 52.2 +2.3 56.0 51.1 +4.9 +7.2
October 55.1 51.6 +3.5 56.6 51.3 +5.3 +8.8
November 54.1 51.2 +2.9 57.0 51.6 +5.4 +8.3
December 53.0 51.0 +2.0 56.5 52.7 +3.8 +5.8
Jan 2014 54.0 51.6 +2.4 51.3 54.0 -2.7 -0.3
February 52.5 52.6 -0.1 54.3 53.2 +1.1 +1.0
March 53.7 52.1 +1.6 54.4 53.0 +1.4 +3.0
April 55.3 53.1 +2.2 55.3 53.4 +1.9 +4.1
May 56.1 53.2 +2.9 55.6 52.2 +3.4 +6.3
June 56.3 52.8 +3.5 55.7 51.8 +3.9 +7.4
July 57.9 54.2 +3.7 56.4 51.8 +4.6 +8.3
August 58.6 53.1 +5.5 58.1 50.7 +7.4 +12.9
Sept 58.1 52.4 +5.7 56.1 50.3 +5.8 +11.5
October 56.9 52.1 +4.8 57.9 50.6 +7.3 +12.1
November 58.8 51.1 +7.7 57.6 50.1 +7.5 +15.2
December 56.5 51.6 +4.9 55.1 50.6 +4.5 +9.4
Jan 2015 56.7 52.7 +4.0 53.5 51.0 +2.5 +6.5
February 56.9 53.7 +3.2 52.9 51.0 +1.9 +5.1

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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