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Economy in Brief

EMU Weaker on PMI Scale
by Robert Brusca  May 2, 2012

The EMU regions continue to give back ground as the April indices have settled into their final values with declines across the board in April with the minor exception of France.

The EMU index may not seem to be so low as it is only at the 47th percentile of its high-low range, a bit short of the middle ground. But ranked by a different metric, the queue standing, a metric that uses all the historic observations to place the index not just the highest and lowest, and we find that the EMU index is weaker than its current value only 9.1% of the time. So when it is in recession and it gets weaker it gets a lot weaker but it is on the cusp of taking that step and making that progression right now.

The relatively strong countries in EMU have shifted their standings on this metric. The highest PMI values in MFG now belong to Austria, Ireland and the Netherlands with France and Germany next in descending order. In the queue standings Austria is strongest at the 38.8th percentile followed closely by Ireland at its 37.1st percentile. Next in order is The Netherlands at the 29.4th percentile and then Germany and France at much lower percentile reading of 14% and 13.3%, respectively, follow. Germany at the 13.3 percentile is not so far from Italy at its 7.7 percentile or Spain at its 9.8th percentile.

Interestingly the UK, an EU member not a single currency member, has its MFG index at 50.53 and it would be the second strongest among the group above; its standing at the 54th percentile in its queue would be the strongest by far. And the UK is not even doing well as an economy. Its economy is weak its inflation is overshooting badly and has been for some time. It is in recession. Yet by the MFG yardstick is in one of the best performing MFG economies in Europe right now. And it owes all of this to not being in the single currency unit and not to having made such good policy choices but just to not being tied up with everyone else the Euro-Area mess.

The weakness is beginning to weigh even on Germany. The German unemployment rate ticked up this month to 6.8% from 6.7%. The German MFG Index has now fallen the most from its pre-cycle peak. In second place is Greece and in third place is Italy. Italy and Germany have fallen a lot from relatively high peaks. In the case of Greece it fall a lot from a much lower peak (the lowest of the entire group, in fact.

Any way you slice it, now Germany is looking more and more like just one of the euro-boys. It is being sucked into the Euro-vortex. Its growth is diminishing. Its MFG sector and service sectors are suffering. It unemployment rate while still low is starting to give up ground. It’s the good ship Titanic effect. When the Titanic went down not even the best state room offered any refuge.

So it goes in Europe.

At some point it will cease to be ‘fun’ to beat up Greece and Spain and Portugal and to torment Italy. When it starts to be clear that they are all are part of the same problem, surplus and deficit nations alike; high inflation or low inflation nations; at that point Europe may have a chance to fix what is really wrong.

Markit MFG Indices
3Mo 6Mo 12Mo %ile Queue
EMU 45.89 47.72 48.96 47.52 47.44 48.86 47.8% 9.1%
Germany 46.21 48.36 50.22 48.26 48.69 50.57 46.3% 13.3%
France 46.85 46.72 49.96 47.84 48.03 49.32 40.7% 14.0%
Italy 43.85 47.85 47.83 46.51 45.77 47.17 37.9% 7.7%
Spain 43.48 44.51 44.96 44.32 44.25 44.97 52.3% 9.8%
Austria 51.23 51.47 51.96 51.55 50.49 50.77 62.9% 38.5%
Greece 40.71 41.32 37.67 39.90 40.60 42.15 15.5% 3.5%
Ireland 50.09 51.46 49.72 50.42 49.45 49.47 72.0% 37.1%
Netherlands 48.97 49.58 50.33 49.63 48.34 49.68 53.6% 29.4%
UK 50.53 51.90 51.57 51.33 50.67 50.46 63.2% 54.5%
percentile is over range since March 2000
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