EMU PMIs Go on Hold in April

The EMU PMI composite index stalled April, at a still growth-indicating 51.3, the same level as in March. In April, the manufacturing sector rebounded slightly, trimming its speed of decline with a 47.8 reading compared to March’s 47.6. Manufacturing is still contracting, but the pace of contraction has slowed slightly. As for services in the EMU, that index slipped after a rebound in March but still stands above its February level. This is still an indicator of expansion but a slower expansion.

The “queue %” column ranks the PMI readings since January 2015. On that basis, the composite reading has been this low or lower only 3.8% of the time. Manufacturing has been this weak or weaker only 1.9% of the time. Services have been this weak or weaker only 11.5% of the time. These are very weak readings even for services where growth is indicated.

Looking at rankings, Germany is an extremely peculiar case; its manufacturing reading is on its low for this period while services have been stronger only about 10% of the time (90.4% reading). The composite German index is at 3.8%; that means it has been this weak or weaker only 3.8% of the time. On the month, German services and manufacturing both ticked lower and the sense of stability here is marginal with erosion slowing while still at a very low levels. The manufacturing gauge is lower in April month-to-month by just 0.2 diffusion points while the services gauge is lower by 0.3 diffusion points. On a weighted basis, the composite index is lower month-to-month by just 0.3 diffusion points.

France saw its services sector move higher by nearly two diffusion points, enough to push it over the 50 threshold, allowing services to register growth. Manufacturing ticked lower by two tenths of a point to 49.6 in April. The French composite, as a result, moved to dead neutral at 50.0 in April from 48.7 in March.

EMU momentum
Still, in the EMU the three-month average of the EMU, German and French composites all are moving lower sequentially. The three-month averages of the manufacturing gauges are slipping lower period-to-period in the EMU and in Germany; France avoids manufacturing deterioration in the three-month period compared to six-months by one-tenth of one diffusion point. Similarly, services deteriorate from their 12-month to their six-month to their three-month averages everywhere except Germany where the three-month reading moves up relative to the six-month. But on balance, there is a lot of weakness (low queue standings) and a great deal of lost momentum, according to the PMIs. Manufacturing is weaker than services by diffusion value everywhere and by the queue standing position everywhere except in France.

Japan’s manufacturing reading lends some credence to the notion that the global manufacturing situation is stabilizing. PMI readings ticked higher in Germany, France and Japan - but all of them are still showing manufacturing contraction. Japan’s contraction was trimmed in April as its PMI rose to 49.5 from March’s 49.2.

Beyond the valley of the PMIs
Consumer spending data in the U.S. and the U.K. released today along with China’s GDP growth give investors some further reason for optimism. Oil prices are firming right now, less on growth and more on supply concerns related largely to geopolitical issues. But geopolitics are a loose cannon and economic data ebb and flow. The data have been very one-way for some time. It is possible that this is a true shift and that there is no recession coming and that the slowdown phase may be exiting its most intense phase. But these are all concepts to watch and to vet month-by-month. Geopolitics, the oil market and economic data are malleable and each will change day-by-day week-by-week and month-by-month. The China trade deal is still not a done deal and the U.S. is opening what are starting out to be acrimonious talks with the EU and soon talks with Japan will commence. Meanwhile, Kim Jong-un seems to be trying to re-start the Korean Peninsula talks on his own terms with a new tactical weapon and an attempt to control with whom he will negotiate. None of that sounds like a gambit that will have any resonance with Donald Trump. China-Taiwan relations already are heated and Taiwan is complaining that China is interfering with its elections. China recently has intruded on Japan’s territorial waters. Let’s not call the economic growth scare over or the global environment settled just yet.

Does the Mueller report change the U.S. economic game?
On a totally separate issue, everyone is watching to see what will come of this Mueller report that has finally been released with redactions to the Congress and to the public. The President previously claimed his full exoneration, but we know that is an exaggeration. Still, a jury only finds you ‘guilty’ or ‘not guilty’ and never innocent. So if Mueller could not bring down the guilty verdict, why did he muddy the waters? His summary was the first spin of the facts, not Barr’s. What facts in the report are open to interpretation? How much will the report’s release damage the President’s authority (if at all)? And what actions will Democrats take and will their response be looked upon as a justified investigation or as a crass political act?

The way ahead...
The future is still open to many different interpretations on this and more. Events of all sorts are still in train and many things could go wrong. And I have not even dredged up conditions in Europe. But there are plenty of important events that are still playing out. Still, today was a day of good news on the economic front. Try to enjoy it for what it is. Don’t let a little good news go to your head.