Factory PMI Differential Between U.S. and Eurozone Narrowed 2.4 Points in February
March 1, 2016
The U.S. purchasing managers index for manufacturing improved 1.3 points to 49.5 in February, indicating a much more modest rate of contraction than in January. The reading was at a 4-month high. Meanwhile, Euroland’s manufacturing PMI dropped 1.1 points to 51.2, a 12-month low. The 2.4-point narrowing of the resulting difference between the two readings to -1.7 was the the most U.S.-advantageous month-to-month swing in 14 months.
Manufacturing is very sensitive to currency changes, which affect a country’s relative competitiveness of exports and import-competing goods. One sees in the table below that the euro’s average value in February of $1.111 was 2.5% stronger than eleven months earlier in March 2015. By contrast, the euro tumbled 21.5% against the dollar between March 2014 and March 2015, and this depreciation previously raised eurozone competitiveness sharply relative to U.S. competitiveness. But the exchange rate relationship has been pretty trendless over the past year, so U.S. manufacturing conditions are stabilizing.
The rise in the U.S. factory PMI last month was associated with 2.6-point increases in both the production and jobs components. The most interesting development, however, was a 5-point rise in the inflation component. Today’s ISM and construction spending reports and indications a a nascent acceleration of U.S. inflation observed in the CPI, personal consumption deflator, and hourly wage earnings puts the possibility of a March federal funds rate hike into greater play than seemed likely two weeks ago. However, there continues to be offsetting factors to suggest a possible further pause, such as a 7-month low in the Conference Board’s consumer confidence index, weaker readings in the Dallas, K.C. and Richmond Fed manufacturing indices, and the deceleration of real GDP growth from 3.9% in 2Q15 to 2.0% in the third quarter and 1.0% in the final quarter. Moreover, Fed officials are paying close attention to the volatility of world financial markets to to signs of fading global growth. The global manufacturing PMI dropped 0.9 points to 50.0 in February, a 39-month low and consisting with full stagnation.
Among Euroland’s five largest economies, the factory PMIs in February fell by 1.8 points in Germany, 1.3 points in Spain, 1.0 points in Italy and 0.7 points in The Netherlands, while the French index, up 0.2 to a reading of 50.2, connoted scant activity. In fact, both of the largest members in the shared currency area are now virtually stagnating, as Germany’s reading was at 50.5.
| Mfg PMIs | U.S. | Euroland | Spread | EUR/USD |
| Jan 2013 | 53.1 | 47.9 | +5.2 | 1.330 |
| February | 53.1 | 47.9 | +5.2 | 1.334 |
| March | 51.5 | 46.8 | +4.7 | 1.295 |
| April | 50.0 | 46.7 | +3.3 | 1.301 |
| May | 50.0 | 48.3 | +1.7 | 1.299 |
| June | 52.5 | 48.8 | +3.7 | 1.319 |
| July | 54.9 | 50.3 | +4.6 | 1.309 |
| August | 56.3 | 51.4 | +4.9 | 1.331 |
| September | 56.0 | 51.1 | +4.9 | 1.335 |
| October | 56.6 | 51.3 | +5.3 | 1.364 |
| November | 57.0 | 51.6 | +5.4 | 1.349 |
| December | 56.5 | 52.7 | +3.8 | 1.370 |
| Jan 2014 | 51.3 | 54.0 | -2.7 | 1.361 |
| February | 54.3 | 53.2 | +1.1 | 1.366 |
| March | 54.4 | 53.0 | +1.4 | 1.380 |
| April | 55.3 | 53.4 | +1.9 | 1.380 |
| May | 55.6 | 52.2 | +3.4 | 1.374 |
| June | 55.7 | 51.8 | +3.9 | 1.360 |
| July | 56.4 | 51.8 | +4.6 | 1.354 |
| August | 58.1 | 50.7 | +7.4 | 1.332 |
| September | 56.1 | 50.3 | +5.8 | 1.290 |
| October | 57.9 | 50.6 | +7.3 | 1.268 |
| November | 57.6 | 50.1 | +7.5 | 1.247 |
| December | 55.1 | 50.6 | +4.5 | 1.232 |
| Jan 2015 | 53.5 | 51.0 | +2.5 | 1.162 |
| February | 53.3 | 51.0 | +2.3 | 1.135 |
| March | 52.3 | 52.2 | +0.1 | 1.083 |
| April | 51.6 | 52.0 | -0.4 | 1.081 |
| May | 53.1 | 52.2 | +0.9 | 1.116 |
| June | 53.1 | 52.5 | +0.6 | 1.123 |
| July | 51.9 | 52.4 | -0.5 | 1.101 |
| August
September October |
51.0
50.0 49.4 |
52.3
52.0 52.3 |
-1.3
-2.0 -2.9 |
1.114
1.123 1.121 |
| November
December January February |
48.4
48.0 48.2 49.2 |
52.8
53.2 52.3 51.2 |
-4.4
-4.8 -4.1 -1.7 |
1.076
1.090 1.087 1.111 |
Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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