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Economy in Brief

PMIs Stabilize or Creep Higher After Drop-Off
by Robert Brusca  April 23, 2018

In the EMU, both the services and manufacturing sectors took a substantial step down one month ago. In April, they are holding their ground at a lower level of indicated activity. The moving averages, calculated on lagging historic data, show the PMI gauges still are firm. But the monthly data show clearly that this going to be temporary condition as both the EMU manufacturing and services gauges fell off sharply in March compared to February. The EMU showed a further cooling off in manufacturing in April but also showed some small rebound for services.

Both Germany and France show some further manufacturing slippage in April contrasted with service sector revival. The service sector revival still leaves the service sectors in France and Germany below the levels they have averaged in the previous periods marked out by their sequential moving averages.

Germany and France both post manufacturing sector queue percentile standings in their respective 73rd percentiles. But German services remain listless in the lower one-third of their historic range while the French services sector stands in the 84th percentile of its historic range.

The percentile standings for the EMU show manufacturing in its 73rd percentile with services nearly at its 77th percentile - much closer to the French values than the weaker German values.

Japan’s manufacturing sector ticked up in April, rising to 53.3 from March’s 53.1 to log a very firm 84th percentile standing. Japan’s moving averages have been deteriorating so the step up in April, although minor, is an encouraging development.

The United States has logged an increase in its manufacturing and service sector PMIs with the greater bounce in manufacturing. The U.S. manufacturing sector has a 90th percentile standing over the past five years compared to services with a 48th percentile standing, still below its median for the period.

Right now global conditions are very much in flux as Europe is trying to evade the U.S. steel and aluminum tariffs and has been making overtures to the U.S. to that end. China and the U.S. continue to posture over a broader tariff spat. The tariff outcome is the wild card in the mix that will trump everything if it is pulled out of the deck. So having that possibly in play makes all the other trends somewhat less important.

Still, the bottom line is that concern about tariffs continues to make firms unsettled about the future. Meanwhile, there has been some clear erosion of activity, especially in Europe. In the U.S., increasingly we hear disappointment that the consumer has not reacted to the tax changes that had been expected to ignite some near-term spending. Instead, the consumer has gone flat. And even surveys of firms’ capital spending plans have showed no real step up in the wake of the Trump tax changes. It is still early in this process, but the early returns on it are disappointing.

Still, the IMF recently ticked higher its look-ahead forecast for this year. But it did that as global PMI data had begun to weaken. There seems to be some sort of loss in momentum as the U.S. has and the Bank of England has moved to tighten policy. European Central Bank also has stepped back on its stimulus and is preparing for normalcy. Has the loss or the excepted loss in monetary stimulus played a role here?

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