EMU Purchasing Managers' Indexes: Trend intact

Markit, the British financial information firm, will release its preliminary March purchasing managers' indexes (PMI) for the European Monetary Union (EMU) in services and manufacturing on Friday March 22nd at 9:00 am GMT, 5:00 am EDT.

Forecast

The manufacturing PMI is projected to rise to 49.5in March from 49.3. The service sector PMI is predicted to drop to 52.7 from 52.8 in February. The composite index will gain 52.0 from 51.9. 

EMU Economy

The EMU economy has been slowing for more than a year. Quarter on quarter growth has dropped from 0.7% for the last nine months of 2017 to 0.4% in the first half of last year to 0.2% in the second half.  Annual growth has fallen from 2.8% in the last quarter of 2017 to 1.1% in the final quarter of last year.

Reuters

While the EMU as a whole has avoided a recession, Italy did not. Her growth in the third and the fourth quarters was -0.1%. Germany avoided a technical recession by the slimmest of margins, registering -0.2% GDP in the third quarter and flat in the last. France grew 0.2% in the first two quarters of last year and 0.3% in the third.  Fourth quarter GDP will be reported on March 26^th.

EMU Consumer Confidence and Industrial Sentiment

Consumer confidence has been decreasing along with retreating economic growth. The confidence indicator from the EMU Directorate General for Economic and Financial Affairs reached a post-recession high in January 2018 at 1.3 and then a bottom this past January at -7.9. The modest rebound to -7.4 in February and -7.2 in March has not reversed the yearlong trend lower.

Reuters

Industrial sentiment exhibits the same pattern as the consumer side. The January 2018 high at 10.2 was a record in the 34 year history of the series but its subsequent and unmediated decline to -0.4 in February shows no evidence of a rebound.  

Reuters

PMI Trends

Manufacturing PMI for the EMU peaked in December 2017 at 60.6 and has been declining for more than a year. It crossed the 50 division between expansion and contracting in February at 49.3

FXStreet

Services peaked in January 2018 at 58.0 and fell for 13 months reaching 51.2 in January of this year. February recovered to 52.8.

The composite PMI topped at 58.8 last January, declined for the year to 51.0 this past January and bounced slightly to 51.9 in February.

Most modern industrial economies are heavily skewed towards the service sector which tends to keep the PMI indexes indicators in positive territory in all but recessions.  Manufacturing is considered a leading indicator due to its longer lead time for planning construction and production.  

Conclusion

The EMU wide year long decline in GDP, consumer attitudes and business sentiment has moderated with small uptrends in consumer confidence and services PMI.  But the general tendency has not reversed.

Europe remains beset by economic concerns from the still unsettled British exit from the Union, a stagnant Italian economy and politically neutered Macron administration in France to a continent wide immigration dispute.  Even Germany the export and financial powerhouse is in an uncharacteristic economic slough.

For Europe to regain economic vibrancy on its own its internal problems must ease. Short of that the answer for reviving growth lies across the oceans in the United States and China.