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Economy in Brief

MFG PMIs Stop Their Descent
by Robert Brusca February 2, 2009

The PMIs for Europe reside very near the bottom of their respective ranges. Generally the readings are bottom 10% of range or less across large EMU members and the UK. Germany is now one of the relative weakest countries on this measure – it is at its range low point. Germany is one of four countries to see its MFG PMI drop further in January.

PMIs: what they are:
PMIs are super sensitive gauges of activity. And they usually detect turning points in a sector before more convention indicators do. The MFG PMIs have only just stopped their declining ways for the EMU region; for several countries the bottom has not yet been hit (as far as we know). Even for those that have rebounded this month we do not know with any degree of confidence that they have firmly put their past low point behind them for the duration of this cycle.

Too soon for the end?
It is too soon to call this a turning point signal. But the first step to getting to a turning point is to build a base that signals that the PACE OF decline has bottomed out. Remember that these are diffusion indices and even if they move ‘sideways’, as long as the value is below 50 it is signaling further declines in the sector they measure. Also recall that PMIs are formally indicators of the breadth of a decline or the breadth of an increase in industry; they are not indicators of STRENGTH.

What about the beginning of the end?
It may also be too soon to look even for bottoming, but it may also be that such a bottoming process has begun. The levels of the PMIs are extremely low, and that is the sort of pace we would expect a true stabilization process to begin at in a cycle such as this. We know MFG is hard-hit so unless the PMIs reached very low readings we would continue to think that worse results would still lay ahead. Now that a first criterion for stabilization has been met (new all-time lows or readings near to that) we can look for a second, namely a period of time in which the PMIs either make modest gains or establish a base by moving sideways. The final step would be for them to rise and eventually to poke their heads above the level of 50. That one is still quite a way off.

NTC/Markit MFG Indices
  Jan-09 Dec-08 Nov-08 3Mo 6Mo 12Mo Percentile
Euro-13 34.42 33.88 35.58 34.63 39.58 44.98 2.1%
Germany 31.96 32.66 35.66 33.43 40.03 46.69 0.0%
France 37.90 34.91 37.28 36.70 39.91 45.34 10.1%
Italy 36.06 35.54 34.95 35.52 39.62 43.86 4.9%
Spain 31.51 28.49 29.42 29.81 34.12 38.89 10.5%
Austria 33.12 35.01 38.26 35.46 40.74 45.43 0.0%
Greece 39.98 40.96 42.25 41.06 45.77 49.44 0.0%
Ireland 38.94 37.87 37.10 37.97 40.36 43.00 10.1%
Netherlands 36.29 38.42 38.71 37.81 42.80 46.99 0.0%
UK 35.78 34.91 34.48 35.06 38.64 43.65 6.0%
percentile is over range since March 2000    
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