A Lesson In PMIs: Relative Vs. Absolute

The bid for “decoupling” has never been stronger, and, unfortunately, this time actually represents the weakest case yet for it. According to the mainstream interpretations of the most recent sentiment indicators, the US and European economies appear to be going in the complete opposite directions.

Beset by even more overreactive governments, spurred oppressively forward by an increase in COVID testing, in Europe the second wave of artificial restrictiveness has already arrived sending that system spiraling back into nearly certain re-recession. IHS Markit’s Eurozone PMI indices were appallingly bad in their “flash” assessments of so far in November 2020.

The manufacturing sector held up somewhat better, though dropping three points to 55.4 from 58.4 in October. Services, however, were pummeled by arbitrary interventions (and ongoing weakness); that particular PMI collapsed to just 41.3, down from 46.9 last month.

Combined, the Eurozone Composite came in an icy 45.1, the first not only below 50 since earlier in the year, way below 50. Uh oh:

Over here in the United States, outwardly the attitude is very different. Who cares about Europe’s retrenchment, they say, in America the economy and its suddenly very important manufacturing sector has rarely been better!

A manufacturing recession, as has appeared from time to time over the last dozen years, these on the downside get written off as nothing more than the curiosities of a small slice of the overall economy. Given the numbers provided by Markit for November 2020 (like those published by the ISM for October), my how quick the manufacturing gets treated as the “real” picture of what must be going on.

It’s nothing like Europe. The flash figures for the US economy from Markit are definitely heading in the opposite direction, pushing up to what appears to be an extreme divergence:

Markit’s picture of US manufacturing hasn’t been this solid in an impressive-sounding 74 months; at 56.7 in November, that’s the highest since (revised) September 2014. The service sector number was nearly as good, at 57.7 the best since March 2015. Combined, the composite index scored 57.9 (somehow greater than both manufacturing and services), equaling its highest month also since March 2015.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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