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Economy in Brief

E- Area PMIs Are Still Low-Valued But Jump
by Robert Brusca April 23, 2009

The PMI’s for the zone are up sharply in April. At 36.33 the MFG PMI is still in the lower 11 percentile of its range. The services reading at 43.10 is in the lower 16 percentile of its range. These are weak positions that speak of a continuing low level of economic activity. But there is also some good news.

In April the MFG PMI has made its largest jump since the series began in June of 1997. The MFG index is up by 2.73 points in April. Similarly the Services PMI has risen by 2.15 points and that is the fourth largest jump m/m rise for services since Feb of 1999 when that series started.

The jump for services comes on the heels of a 1.17 point gain in the index in March which was the eight largest rise at that time. So services in Europe are making greater strides toward improvement in the last few months.

Of course the level of the two indices is still very low. Both are below the break-even line of 50; both indices attest to the continuing unraveling of economic activity in Europe. On top of that a new poll by the German economic think-tanks projects a 6% drop in GDP for the year ahead in that key e-Zone country. For the UK, Barclays CEO has just prognosticated a deep and long downturn in the UK. In France has a new domestic survey on business sentiment says that it has gained some small ground.

There are both scattered signs of improvement in Europe and at the same time pessimistic assessments of where the economy is as well as of where it is going over the rest of the year. It is not clear which of these signals markets are going to latch onto. Still, it is reassuring to see the down drafts slowing. The report of new industrial orders out the e-Zone today is an example of this topsy-turvy news. EMU orders took the largest Yr/Yr drop in their history today. Still the series reported a one of its smallest month-to-month drops. So, even as the year /year data confirm how bad the orders drop has become, there is evidence that the declines are set to slow. The bottom line is that Europe is probably worse off than many have been thinking- including the authorities that have been reluctant to act aggressively and even stiffed the US request to do more at the recently concluded G-20

FLASH Readings
Markit PMIs for the E-Zone
  MFG Services
Apr-09 36.66 43.10
Mar-09 33.93 40.95
Feb-09 33.55 39.24
Jan-09 34.42 42.16
   3-Mo 33.97 41.10
  6-Mo 35.41 41.66
  12-Mo 41.90 45.06
127-Mo Range
  High 60.47 62.36
  Low 33.55 39.24
  % Range 11.6% 16.7%
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