Latest PMI and employment stats do not look so good


Global PMI figures from ISM and Markit for manufacturing and services are predominately worse than last month, but many still show increases in economic activity. However, of particular note, are the figures from Italy, Spain and Australia; in these countries, both sides of the economic ledger came down with force. Moreover, Europe manufacturing on aggregate dropped to fresh debt crisis lows (34-month lows to be specific). All of this is consistent with Europe being in a recession. However, note that PMIs dropping to 40 or even lower once or twice under no circumstances indicates a collapse in anything else except the index itself, and perhaps green shoots. Furthermore, depressing manufacturing figures do not necessarily mean a deep recession, because services account for a much larger portion of the economy. That said, Europe does not look positive in any way.

US on the other hand still looks pretty good.


Taking a closer look at the US figures, manufacturing was up 1.4 points to 54.8 while services came in at 53.5, a 2.5 point decrease and a huge miss to expectations. On a headline level, US continues sluggish growth. On the manufacturing side of things, production, new orders, employment and new export orders came in strong, while in services the same components saw big drops except for exports which were up. The biggest swing was in prices and that was to the downside.

Europe employment

Europe latest barrage of employment statistics for the month of March were not a pretty show; unemployment rates ticked up to 10.9 in the Eurozone. From Finnish perspective, it is nice to see that the situation has not worsened, albeit there is also no material improvement.

Spain’s latest figures are horrendous; their own 1Q figures showed unemployment climbing all the way to 24.4 per cent. Moreover, their economy continued sequential decline in 1Q and the country officially entered a recession.

February figures pegged the amount of bad loans in their banking system at around 140 billion euros, which is pretty staggering considering their GDP for 2011 was only 1070 billion euros and for 2012 it is going to be less. Given the sharp rise in unemployment and continued risks to the downside, I am interested in this figure. To add insult to the injury Spain was also hit by not one but two South American utility nationalizations courtesy of Argentina and Bolivia.

US employment

US payrolls for the month of April came in at  +115k, clearly below expectations and barely indicative of improving labor market. However, the real devil was in the details; at this point, it has been repeated ad infinitum that the only figures worth looking at were the massive increase in not-in-labor-force and the massive sequential drop in full-time jobs. Let us go through the key stats:

  • Non-institutional population: +180k
  • Labor force: -342k
  • Employment: -169k
  • Unemployment: -173k
  • Not in labor force: +522k
  • U3: 8.1%
  • U6: 14.5%
  • Payrolls: +115k
  • Private payrolls: +130k
  • Manufacturing payrolls: +16k
  • Average workweek: 33.8
  • Average hourly pay: 19.72$

Starting with work-aged population, which is up 180k and employment is down by 169k. Any sensible person would think that the unemployment situation worsened materially. Alas, one would be wrong. The unemployment rate went down to 8.1%. The reason for this is that somehow there was a reduction of 522 000 in the number of Americans who are work-aged, but suddenly do not qualify as unemployed even though they are no employed. Judge for yourself. This game has been played for quite a while now and most of the so-called improvement is attributable to it. Somehow, I do not believe it is all about retirement especially since we are talking about work-aged people who got their 401ks wiped out in the market crash and now cannot live on fixed income thanks to the Fed.

The same thing graphically:

There is something positive as well; government payrolls are down and manufacturing is up. However, on balance, this is a bad report.


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