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Economy in Brief

Europe Continues to Make a Turn Higher: Sector Results Turn Mixed in June
by Robert Brusca June 23, 2009

Markit PMIs composite index rises - The Euro Area FLASH PMI for MFG rose in June but that happy event was partly offset by a decline in the region’s services survey. The composite index comprised of both MFG and Services rose to 44.4, its highest reading since September of 2008. The composite index stood at 44 in May.

In Manufacturing

In Germany the country level index for MFG rose to 40.5 from 39.58 in May, its highest level since October of last year.

In France the MFG index moved up to 45.5 from 43.32 in May, reaching its highest point since August of 2008.

The moving averages for MFG show levels are still below those of 12 months ago but the EMU trend has been improving and the current level of the MFG index is above the 12-mo 6-mo and 3-mo moving averages. That is very good for momentum.

The Service Sector

The services gauge for all of EMU fell in June but remains above the level for April having only seen backsliding for one month’s worth of gains. The same is true of the services slippage in France and in Germany; each lost only one month’s worth of gains. Still, in Germany the service index stands at 44.3 in the just the 15th percentile of its historic range. For France the index is at 47.5 and stands in the 32nd percentile of its range. In contrast Germany’s MFG index stands in the 31st percentile of its range, not nearly as low as for services; France’s MFG index stands in the 47th percentile of its range also superior to its relative reading for services. For all of EMU the services index stands near the 25th percentile of its range compared to a standing at the 34th percentile for MFG. The manufacturing sector is now beginning to be more of an engine of growth after the services sector had provided the role of support when the economic scene was unraveling in Europe.

A note on MFG/Services comparison

Note that absolute reading for services is superior to that for MFG but that for MFG the current reading is at a higher percentile in its range. The percentile reading is a better gauge to use to compare one index to another since MFG indices span a broader range of values and since the Services index has higher reading on average. The services reading average nearly FOUR points higher than the MFG readings. So on several bases the MFG index now is relatively stronger than services despite the higher absolute monthly reading for services. Over comparable periods the standard deviation of the MFG index is 5.41 compared to 4.72 for services making the MFG sector some 14% more variable than services and 20% more volatile relative to its mean. The service index is relatively sluggish compared to the MFG index, as we well know. Not surprising then that MFG is the best DIRECTIONAL index. Fortunately it is moving UP now.


Manufacturing is now on the strongest rising gradients for EMU. The service sector index has paused and lost some momentum. Still the overall picture and trend remains positive.

Another sign of progress this morning came from the Belgian National Bank index which trimmed its negative reading to -23.6 in June from -27.6 in May. For that index it is the best reading since November 2008.

In terms of these index readings, we see in the Markit PMIs the best MFG and Services (for services based on the May reading) readings since August – October of last year and in the Belgian series the best reading since November. On balance it is looking like a reasonably well balanced rebound is taking place across the Zone in these countries and across their various sectors, at least as judged by the measures presented here. Of course, all the respective measures still point to continuing losses. But these indices speak to the fact that the speed of the loss has been cut sharply from the lows showing that the pace of decline is back to the pace last seen in early Q4 or late Q3 of 2008.

The MFG ands Services PMIs each were last above 50 in May of 2008. The Belgian bank index was last positive in May of 2008 as well. How soon we get back there depends on quickly this incipient recovery traces its own steps. For now it is on the right path and the pace of recovery is a good one, service sector (perhaps) excepted.

FLASH Readings
Markit PMIs for the Euro Area
  MFG Services
Jun-09 42.37 44.49
May-09 40.68 44.82
Apr-09 36.83 43.76
Mar-09 33.93 40.95
3-Mo 37.15 44.10
6-Mo 35.55 42.29
12-Mo 39.92 44.22
127-Mo Range
High 60.47 62.36
Low 33.55 39.24
% Range 32.8% 22.7%
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