EMU PMIs Reverse Favorable Trend German Continues to Show Growth

The flash PMIs for MFG and Services turned lower in February surprising expectations for both the manufacturing and services components. After a long period of declining that dates to a peak in 2011and has seen several minor cycles in the context of the overall decline, the current rebound is unconvincing. While this sort of rebound has been seen before and has proved false, this time around the MFG PMI has been on a longer-lived rebound. Still the weakening in the services PMI is relatively sharp. And too much of the revival is on the back of Germany, a country that does not share prosperity well.

The monthly MFG drop for EMU leaves the monthly change as the 71st strongest out of 174 observations leaving it in the top portion of the distribution despite it being a drop. But for services the drop leaves the monthly change as the 135th largest monthly change out of 174 leaving it in the bottom 22% of its historic queue of monthly changes. The MFG change on the month is insignificant. But the service sector drop-off is relatively large - and this is the jobs sector.

The readings are very weak in terms of levels of the MFG and Services indices with the service index residing in the lower 11 percent of its historic queue and manufacturing in the lower 21 percentile of its historic queue.

Markit's flash composite Purchasing Managers' Index for Germany which measures growth in both manufacturing and services, stood at 52.7 in February. That composite score was down from January's 54.4 but still above the 50 mark that separates growth from contraction. Just this week the Bundesbank declared that the German economy would avoid recession. Despite a weakening of the EMU PMIs this month which linger below break-even the German weakening still leaves its PMI signals in the 'plus' column showing growth, if somewhat slower growth.

The French PMI, however, fell. It was led lower by a sharply weaker services reading. As the two largest MEU economies it is hard to believe that the troubles in France are not going to create some problems for Germany. Indeed, all is not well in the Zone and that is becoming more obvious. This week saw some renewed strike activity in Greece. In Italy Silvio Berlusconi is back in the hunt for office and his platform involves demonizing Germany for thrusting the yoke of austerity over the shoulders of an economy that is not growing. Berlusconi was making headway in the polls, the last we knew of it.

Discerning the future for Germany is not going to be as simple as perusing the values of its PMI data.

While some of the reports on the German economy are citing today's PMI's as evidence that Germany is still 'the engine of growth' for Europe that is a very circumscribed view of reality. In the sense that EMU data give Germany a large weight and Germany is still growing Germany is contributing to the growth rate for the Zone. But Germany's domestic demand is having almost no spill over impact on the rest of Europe. Germany continues to run trade surpluses and to export more than it imports to its fellow Zone members. What that means is quite the opposite...that Germany is pilfering from the weak growth of domestic demand from the rest of union to bolster its own growth rate of output. German consumers are not really pitching in from their catbird seat in the region's strongest economy to buy goods made outside Germany's borders.

Conditions is the Zone remain quite touch and go despite press reports and other attempts to make it seem that the ECB and the EU Commission are on top of things. They are not. They are trailing events and they still have a tiger by the tail. Europe is still at odds with itself over what to do next. Still-pending national elections make the time 'not right' for difficult decisions. That makes the time 'quite right' for continuing problems.