Growth in U.S. Manufacturing Slowed Sharply Last Month Both Absolutely and Relative to Euroland Counterpart
January 3, 2019
In contrast to November when the ISM-compiled U.S. purchasing managers index exceeded the IHS-compiled PMI for the euro area by the widest margin in four years, that differential in December narrowed by 4.8 index points in December to an 8-month low of 2.7 points. The U.S. index dropped 5.2 points to a 25-month low of 54.1, while Euroland’s measure slid just 0.4 points lower to 51.4. Being above 50, manufacturing grew positively in both economies, and since the U.S. index was further above 50 than Euroland’s, factory growth continued to expand more quickly than its European counterpart, but the greatly reduced spread between the two numbers signifies an abrupt and substantial closer convergence of the two trends. Pace still favors the United States, but momentum has swung in favor of Europe and, for that matter, most other economies such as China whose PMI in manufacturing slipped 0.5 points.
The 5.2-point decline in the ISM PMI reading from 59.3 to 54.1 was the greatest month-to-month decline in this data series since ground zero of the Great Recession (from December 2007 to June 2009), namely October 2008. U.S. GDP had sandwiched declines of 2.3% in the first quarter of 2008 and 2.1% in the third quarter around positive growth of 2.1% in the second quarter, tracing up to that point a fairly moderate downturn. After Lehman Bros. belly-upped in mid-September, however, the recession intensified into overdrive, and October’s PMI decline was an early sign of horrendous fourth quarter growth, which turned out to be minus 8.4% and the worst quarter of that whole recession.
Any comparison grouping December 2018 with October 2008 is an ominous sign, and the news at 10:00 EST today (15:00 GMT) transformed an already sizable drop in America’s stock market into something much worse — a 635 point drop in the Dow, or 2.7% at this writing. The broad composition of weakening growth in U.S. manufacturing last month suggests that the number is genuine and not a fluke. Sub-indices for demand (down 11.0 points), production (down 6.3 points), prices (off 5.8 points) and jobs (-2.2 points) all fell. Also, IHS, which compiles the purchasing manager surveys in Europe, takes a survey each of the U.S. economy as well each month, and this fell 1.5 points to a 15-month low in December.
The purchasing managers index (51.4) in the euro area last month, to be fair, indicated the weakest growth in manufacturing since February 2016 but at a pace that was only marginally softer than experienced in November. Two of the top three member economies, Italy and France, had slightly sub-50 readings, suggesting outright contractions, but the six others were above the 50-threshold, including the Dutch 3-month high of 57.2 and readings above 53.5 in the case of Ireland, Austria, and Greece.
The 5.2-point drop in the U.S. PMI last month also strikes a contrast with the decrease reported for China and the whole world. Those declines were both 0.5 of a point, which raises a question about whether the United States is really winning the tariff dispute as President Trump insists. The purported purpose of the changes in U.S. policies on trade and immigration is to revitalize manufacturing and reduce America’s trade deficit, both in total and bilaterally where that deficit has been particularly large. The merchandise deficit, which excludes services, totaled $729 billion through the first ten months of 2018, 9.9% wider than a year earlier. In just October, the deficit was 14.1% greater than in October 2017 and 24.2% higher than two years earlier. Bilateral deficits with three trading partners, whose practices on trade have been criticized by the U.S. president, grew respectively over the last 12 reported months by 22.4%, 8.4%, and 8.1% in the cases of China, Germany and Mexico.
A Final Thought: If revitalizing U.S. manufacturing and reducing the trade deficit are truly top economic policy priorities of the Trump Administration, officials should want to see the the dollar depreciate to a more price-competitive level. Currency manipulation is a less distorting approach to this goal than imposing tariffs and other barriers. So How’s that effort working out? Comparing last month to January 2017 when Trump was inaugurated, the dollar has appreciated 6.5% against the euro in month-average terms as one sees in the right-most column below. The 8.4% rise over the last nine months of 2018 was juxtaposed against intensifying implementation of barriers to trade and immigration. America has been a pioneer in developing and creating applications for new technologies, but maintaining leadership in those areas now threatens to be stymied by barriers to attracting skilled foreign labor.
| 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 Jan 2016 February March April May June July August September October November December Jan 2017 February March April May June July August September October November December Jan 2018 February March April May June July August September October November December |
48.4
48.0 48.2 49.7 51.7 50.7 51.0 52.8 52.8 49.4 51.7 52.0 53.5 54.5 56.0 57.6 56.8 55.3 55.5 56.7 56.5 59.3 60.2 58.5 58.2 59.3 59.1 60.8 59.3 57.3 58.7 60.2 58.1 61.3 59.8 57.7 59.3 54.1 |
52.8
53.2 52.3 51.2 51.6 51.7 51.5 52.8 52.0 51.7 52.6 53.5 53.7 54.9 55.2 55.4 56.2 56.7 57.0 57.4 56.6 57.4 58.1 58.5 60.1 60.6 59.6 58.6 56.6 56.2 55.5 54.9 55.1 54.6 53.2 52.0 51.8 51.4
|
-4.4
-4.8 -4.1 -1.5 +0.1 -1.0 -0.5 0.0 +0.8 -2.3 -0.9 -1.5 -0.2 -0.4 +0.8 +2.2 +0.6 -1.4 -1.5 -0.7 -0.1 +1.9 +2.1 0.0 -1.9 -1.3 -0.5 +2.2 +2.7 +1.1 +3.2 +5.3 +3.0 +6.7 +6.6 +5.7 +7.5 +2.7 |
1.076
1.090 1.087 1.111 1.114 1.134 1.130 1.124 1.106 1.120 1.121 1.103 1.078 1.054 1.063 1.064 1.069 1.072 1.106 1.124 1.153 1.182 1.191 1.176 1.174 1.184 1.220 1.234 1.234 1.227 1.181 1.167 1.169 1.155 1.166 1.148 1.136 1.138
|
Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: U.S. and euro area manufacturing purchasing manager surveys, U.S. trade deficit
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