E- Area PMIs Are Still Low-Valued But Jump

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

The Bureau of Labor Statistics reported that job market stress reached another record level and that some leading sign of improvement is at best tentative. Continuing claims for unemployment insurance increased to a record high of 6,137,000 are more than double the year ago level. The series dates back to 1966. The four-week average of continuing claims also rose to another record of 5,944,000. Continuing claims provide some indication of workers' ability to find employment and they lag the initial claims figures by one week.

A leading sign of developments in the labor market tends to be provided by initial claims for unemployment insurance. Though claims rose last week to an expected 640,000 from a little revised 613,000 during the prior week, they have fallen during all of this month. The average level of claims during April of 638,000 is down from 658,000 during March. However, the early timing of Easter may have played a role in the decline as the seasonal factors raised the March level. Nevertheless, claims remain near the ten-year high.

The latest claims data cover the survey week for April nonfarm payrolls. Claims held roughly stable at 640,000 with 644,000 last month. During the last ten years there has been an 86% correlation between the level of initial claims and the change in nonfarm payrolls.

The Labor Department indicated that the largest increases in initial claims for the week ending April 11 were in Florida (+9,303), Pennsylvania (+7,538), California (+6,404), Wisconsin (+3,611), and New York (+3,581), while the largest decreases were in Michigan (-12,566), North Carolina (-6,428), Missouri (-5,575), Kentucky
(-5,313), and Oregon (-4,580).

The insured rate of unemployment continued its upward march. The latest level of 4.6% was double that of last April and the highest level since 1983. During the last ten years there has been a 93% correlation between the level of the insured unemployment rate and the overall rate of unemployment published by the Bureau of Labor Statistics.Clearly the figure understates labor market distress in some states. The highest insured unemployment rates in the week ending April 4 were in Oregon (7.7 percent), Michigan (7.6), Idaho (6.8), Wisconsin (6.7), Puerto Rico (6.6), Pennsylvania (6.3), Nevada (6.1), Rhode Island (6.0), Vermont (5.9), and Montana (5.8).

The unemployment insurance claim data is available in Haver's WEEKLY database.

Introduction to the New Keynesian Phillips Curve from the Federal Reserve Bank of Richmond is available here.

The Phillips Curve and U.S. Macroeconomic Policy: Snapshots, 1958-1996 also from the Federal Reserve Bank of Richmond can be found here.

The lower price-higher sales story from the housing market seemed to reverse last month, according to the National Association of Realtors. Sales of existing homes fell 3.0% last month to 4.57M and that reversed most of February' 4.9% gain. Consensus expectations had been for March sales of 4.65M homes. Total sales include sales of condos and co-ops. In each of the country's regions sales during February roughly recovered their January declines.

Working the other way were median home prices which rose 4.2% after an upwardly revised 2.1% increase. These gains may reflect, however, the end of the winter doldrums. Prices have fallen 23.5% since their peak. Declines in home prices and lower interest rates have gone a long way to increase the affordability of an existing home which is up roughly one-quarter from one year ago. The measure rose in February to a record high for the series which dates back to 1971.

Sales of existing single-family homes alone also reversed most of the earlier month's gain with a 2.8% m/m decline to 4.100M units. Sales remained near the lowest level since July 1997 and they have been essentially flat for the last four months. (These data have a longer history than the total series).

The number of unsold homes (condos & single-family) on the market reversed a portion of their February increase with a 1.6% decline. Year-to-year inventories are down 9.3%. At the current sales rate there was a 9.8 months' supply on the market which was near the lowest since 2007. For single-family homes the inventory also fell slightly by 1.2% (-9.7% y/y). At the current sales rate there was a 9.3 month's supply, near the lowest since 2007.

The data on existing home sales, prices and affordability can be found in Haver's USECON database. The regional price, affordability and inventory data is available in the REALTOR database.

Global Economy Contracts, With Slow Recovery Next Year from the International Monetary Fund can be found here.