According to Patrick Artus, Research Analyst at Natixis, PMIs (cyclical prospects) have become very positive at the end of 2016 and in early 2017 in the United States, the euro zone and the United Kingdom.

Key Quotes

“We actually do not expect growth to accelerate 

  • In the United States, the full employment situation means that growth cannot exceed potential growth, which is around 2%. A significant acceleration in growth is therefore unlikely.
  • In the euro zone, the rise in inflation caused by the rise in the oil price will lead to a marked loss of purchasing power for households, which should normally lead to a decline in consumption and growth.
  • In the United Kingdom, the rise in inflation caused by imported inflation due to the depreciation of the pound sterling should also reduce real household income, consumption and activity.”

“In the United States, growth is limited to the level of potential growth, in the euro zone and in the United Kingdom, the return of inflation is reducing real household income markedly. The explanation is that there is no long-term predictive content in PMIs.”

“Conclusion: There is probably no contradiction

  • The fact that PMIs are very high in early 2017 while no future acceleration in growth is expected in the United States, the euro zone or the United Kingdom (due to full employment in the United States, the rise in inflation in the euro zone and in the United Kingdom) can be explained by the fact that there is no predictive content in PMIs beyond the following quarter.
  • A high PMI in the first quarter of 2017 does not indicate that growth will be strong in the third quarter of 2017.”  

 

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