Euro-Area PMIs Head Lower

The early read on the European PMIS is called the flash release. This month the indicators are flashing warning signs as growth is fading very fast and ECB head Trichet sees red warning signals of his own. Every picture tells a story, alright. The picture above tells a clear story of a slowdown in progress. The drop off in European MFG has been sharp. This is the sixth sharpest four-month drop in the MFG index since its inception. The previous string of stronger drops came in the recent recession from late 2008 to early 2009.

It is a recession-like drop off for MFG activity.

We have seen the same thing in the US where each of the main PMIs for MFG and for Non-MFG have made drops of historic proportions.

In Europe the standing of the tow PMI's is still showing expansion in each of the two sectors. But as a standing in their respective queues a dicey picture emerges... The MFG index at a raw reading of 52.04 stands below the midpoint of its queue, at the 48Th percentile of its ranking. For services the 54.21 standing is a bit better, but not by much- right at the 50th percentile of its queue. The queue standings tell you that activity in each sector is better than this about half the time and worse about half the time. Both indices are slightly above their averages. That is not a terrible result but neither is it good as Europe tries to sustain growth and put people back to work and to generate growth in tax revenues to make deficit reduction progress. Growth in this environment is the elixir of life. What's worse is that the PMIs post these readings as they are still sliding lower.

While the Fed is looking for a second half 'pick-up,' Europe is looking like it is sliding into a patch of even weaker growth in the second half. The current data are for June and we are on the cusp of the second half of the year with very moderate PMI readings and sharply declining momentum.

If Japan is the main reason for the US slowdown (as Mr. Bernanke seems to hint at least for the US...) it must be playing a role in Europe as well. But we see no indication of a pick-up in-the-making. Fed Chairman Bernanke is upbeat and as of yesterday was looking for a second half pick up in the US.

Meanwhile, in Europe, ECB head Trichet is saying his warning indicators are flashing red. If Europe is 'red' surely the US must at least be 'yellow' based on linkages? But if the US is picking-up Europe's 'red flashing light' will wink out and turn green soon. Won't it?

So who is wrong here? Is Trichet too pessimistic or is Bernanke too optimistic? Enquiring minds want to know... So far Trichet's position continues to get lots of support from incoming data while Bernanke's position remains an unsupported hope and a prayer. Stay tuned to see if that changes. Sometimes tapping on the glass will cause those pesky warning lights to wink out all on their own. Other times things just get worse...