Manufacturing activity in Europe is decreasing. The widely followed "PMI" surveys, compiled by NTC Research in London and published by Reuters, indicate net decreases in overall manufacturing in the Euro-Zone for May, the second consecutive month. The total index is 48.70, off from 49.19 in April. All the major component countries registered readings below 50 as well. In fact, only the Czech Republic is holding onto growth, and at 51.39, that is slowing. Readings above 50 indicate net gains in business, while below 50 show a net contraction.

Yesterday in this space, Louise Curley described weakness in business and consumer confidence in Europe, and of course, French voters surprised their own government and Euro-Zone officials by soundly rejecting the European Union constitution, surely a manifestation of this lack of overall "confidence" in the region. Today's manufacturing data underscore some fundamental sources for that malaise.

Among the components of the PMI survey, new orders are below 50 for a second month and order backlogs are down for a third successive month. May is the first month that total output has fallen below the 50% breakeven level.

There is one notable sign of hope in these data. Input prices have been very strong in recent months, reaching a high of 76.7% last October. But the upward pressure on these costs has been dissipating, and in May nearly disappeared altogether. The input price index was 50.73 for the Euro-Zone, the lowest since September 2003. We'd surmise that the recent moderation in energy markets has contributed to this, and other commodity price movements have tempered as well.

In contrast, as we illustrate in the table below, manufacturing in two Asian economies is still growing. In Japan, a modest rise in the PMI index in May extends an uptrend to a fifth month. The China PMI eased from 54.36 to 53.27, but those followed a spurt in March to over 55; the Chinese series remain inconclusive at this time though, because there is only 13 months' worth of data.