The manufacturing index of the PMI/Markit survey is losing steam. Its peak was seen at the beginning of this year. This lack of momentum can also be perceived in the manufacturing part of the IFO survey in Germany and in the INSEE survey in France.
That’s what the first chart below shows. The level of the three index are different but the three profiles are consistent. For the three the short-term trend is on the downside.
We also see that the PMI index is close to its historical value (0 on the chart). It doesn’t reflect a strong momentum or a forthcoming robust impulse on economic momentum.
Looking at each country’s index we see that there is now (again) a strong heterogeneity. Ireland and Spain have a strong momentum but Germany, Netherlands, Italy and the Euro Area are growing at a lower speed. For France, Austria and Greece the momentum is negative for the manufacturing sector. In France, the perception is that the peak cycle is behind us but without having been able to realize that it was a peak.
A few months ago (from spring 2012) the homogeneity is all indices let me imagine that the Euro Are could have a strong growth period. That’s what was seen in previous business cycles. This is no longer the case and that’s not good news for the Euro Area.
If we want to go further in the analysis, then the main point to look at is the new orders’ momentum. The chart below shows the ratio of New Orders to Inventories. We see, again, a strong heterogeneity. Ireland and Spain have strong flows of new orders. This message is clearly positive for the economic activity in both countries.
But for Germany and the Euro Area the momentum is weaker. The drop is brutal for France and Austria. Flows of orders are too weak to imagine a rapid recovery.
We could also say that for Greece.
This ratio is important as its profile is consistent with the 3 month change of the industrial production index. The downward trend of the ratio means that industrial production dynamics will slowdown. The business cycle is positive for Spain and Ireland but for the rest of the Euro Area, the peak is behind us and the horizon is now foggy.