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Economy in Brief

Europe's Composite PMI Pullback
by Robert Brusca  February 21, 2018

European PMIs pulled back in February. The services PMI pullback was relatively strong. Still, for the EMU, Germany and France, the moving average values of the PMIs overall as well as the sector indexes continue to advance. The percentile standings of the various composite PMIs and their sector indexes are uniformly very strong with the sole exception of the German services sector with a queue standing in its 75th percentile- that is only moderate.

The February step-back is a relatively large step-back for the EMU as well as for Germany and France. Still, in each case, the composite index- as well as the two sector indexes for the EMU as well as for Germany and France- all stand above their respective 12-month averages. But most of them are below their one-month lagging three-month averages and six-month averages. The lone exception is the February German service sector index whose reading is just a tick above its six-month average.

Japan joins the slowdown signal in February as its manufacturing reading is lower month-to-month, but in Japan's case the February reading is still above its various sequential moving averages. And despite its relatively lower diffusion value in comparison to Germany, France and the EMU, it has a similar strong PMI queue standing. Compared to its readings of the past five years, the Japanese manufacturing sector is doing relatively well- nearly as well as Europe.

The U.S. PMIs are moving in the opposite direction in February. The manufacturing index moved up in February while the services index rose sharply. As a result, the U.S. composite index rose by over two points in February. Still, the standings of the U.S. PMI gauges are below the standings for the EMU with the exception of manufacturing where the U.S. sector is beginning to rise beyond the mid-85th percentile for its queue standing.

Other indicators...
On the whole, the flash PMI readings released today are still relatively upbeat and they signal an ongoing expansion. But there are several straws in the wind about slowing in other reports also released today. The U.K. reported a Q4 increases in its unemployment rate to 4.4%. In Norway, the unemployment rate also moved higher in December by one tick to 4.1%, compared to end-September. Australia's leading economic index slowed sharply its rate of growth in January. In addition, other than the PMI slowing in Japan, Japan's all-industry index stepped back in December as its growth rate slowed to 0.5% from 1.0%.

All signs still point to growth. It is too soon to begin to chronicle a slowdown. But the PMI readings are so high that statistics alone suggest that lower values are more likely than stronger values. Still, the PMI drop-off is only a one-month signal even if the drop is relatively sizeable. There is also the swing lower in the Baltic Dry goods index, a well-known trade barometer, that is now showing signs of stability at a reduced level after falling well off its recent peak. And then there is emergence of new global markets turbulence. All of this leaves a somewhat inconsistent view of trend and momentum. But without putting too fine a point on that, the major conclusion is still that growth is in gear. However, the sounds or signs of sputtering also can be taken as a cautionary signal about what central bankers should be up to next. Has the perception of a more aggressive central bank posture had a hand in muddying the waters on trend already?

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