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Tag: Pmi

Will the slowdown in US services sector reverse with higher temperatures?

In trying to assess the trajectory of the US economy, one is struck by the recent divergence between the manufacturing and the services sectors. Manufacturing in the United States has picked up steam recently in spite of some weather-related headwinds (see chart). The service sector on the other hand took a turn for the worse, which is negatively impacting the labor markets in this service-oriented economy (see story). A couple of key indicators point to slower non-manufacturing activity:

1. The ISM non-manufacturing PMI came in at the lowest level in years.

Source: Investing.com

The detail behind the decline shows the big hit to employment in the service sector, which is what we see in the ADP private payrolls today.

Source: ISM

2. The Markit PMI measure paints a similar picture.

Markit: – Adjusted for seasonal influences, the final Markit U.S. Services PMI™ Business Activity Index dipped sharply to 53.3 in February, from 56.7 in the previous month. Although the index was above the 50.0 no-change mark and signalled a solid pace of expansion, the latest reading was the lowest since October 2013 [US government shutdown]

Most analysts blame this weakness in the service sector and the resulting softness in the labor markets on the weather.

ISI: – There’s hardly a lamer excuse than weather, but that’s probably the case for ADP’s +139k for Feb. It presents downside risk to our best guess for payroll employment of +185k. 

Markit: – With the exception of last October, when the government shutdown hit the economy, the service sector grew at its slowest rate since March of last year. This time, the extreme weather was to blame for the slowdown.

If that is indeed the case, as temperatures cimb, we should see a material rebound in service oriented businesses and therefore some big improvements in the jobs picture later this spring. That would mean more Fed taper and higher yields. 

For those who subscribe to the weakness in the services sector being mostly weather related and therefore transient, now may be a good time to get back into that treasury short trade. 

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Germany and France economic divergence – Sober Look

The Eurozone recovery continues to be uneven, powered primarily by a pickup in export-driven manufacturing and with only some nations participating. In particular we are witnessing a significant divergence between the area’s two largest economies, Germany and France. As German manufacturing firms gain momentum (see post), the French recovery has stalled.

The Telegraph: – Figures showing private sector growth across the Eurozone have underlined the widening chasm between the bloc’s economic giants, Germany and France, with the latter increasingly looking like the “sick man of Europe”. …

… looking at the separate surveys, it is clear that Germany is pulling away from France. Germany’s manufacturing sector grew at its fastest clip in 30 months, and services are expanding too. But in France, both sectors are in a sharpening decline.

it’s the unbalanced nature of the upturn among member states that is the most worrying. France looks increasingly like the new ‘sick man of Europe’, as a second successive monthly contraction may translate into another quarterly decline in GDP, pushing the country back into a technical recession. In contrast, the December survey data round off a solid quarter of growth in Germany, in which GDP looks set to rise by 0.5pc.

The following chart of manufacturing PMI trends tells the story of divergence. Note that a reading below 50 represents a contraction in the manufacturing sector.

Source: Investing.com

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This 4th of July let’s celebrate all the economic improvements in the US – Sober Look

As we approach the 4th of July weekend, there are plenty of reasons to celebrate all the economic improvements we’ve witnessed in the US recently. After all, the Fed is talking “taper” because economic conditions are so much better than they were a year ago when the current round of quantitative easing was launched. Among other things, the nation is undergoing a manufacturing Renaissance. Except we ran into a bit of a “soft patch” this spring.

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