German bond auctions failing, IMF non-announcements driving market sentiment, Spain paying through the nose to fund itself, credit spreads blowing out, Dexia dragging down triple-A France, eurobonds getting vetoed again, bank runs in Latvia, and then flash estimates of November’s Purchasing Managers Indices have to come along and kick us when we’re down. And just before Thanksgiving too.
The Markit Flash Eurozone PMI Composite Output Index, based on around 85% of usual monthly replies, rose from 46.5 in October to 47.2 in November. Although signalling a slight weakening in the rate of contraction, the latest reading signalled a downturn in private sector business activity for the third successive month.
That’s economist-speak for: “things aren’t going well for businesses in the eurozone, but in November they are going slightly less bad. At least in some places anyway. We called more than 3,800 people and they are not having a good time.”
In graphical format, along with changes in (quarterly) GDP as an indicator of the predictive powers of the (monthly) PMI:
Separating out for the (minimum) two different euro area speeds:
Taken together, manufacturing and services are contracting at an ever greater rate in the periphery, while Germany is still flat, and France showing a slight improvement, — i.e. not contracting as fast as it was before (it’s still below 50.0, which signals contraction).
Just in case you’re secretly hoping that the final read for November will come out better (or worse, if you’re someone who’s shorting the eurozone) than this flash estimate, think again: the error rate on the flash versus the final is just +/- 0.2. Guess that’s what you get for getting 3,800 people to tell you how it’s going for a number that’s just an estimate. So much for it being sleepy in Henley.
But to get the full story, one has to look at the sectors that comprise the overall PMI headline figure. Germany’s manufacturing sector, once the powerhouse of Europe, is having it particularly bad this November, with its flash estimate coming in at 47.9, which is a 28-month low. In October it was 48.1.
Tim Moore at Markit Economics about what this means for the future:
The forward-looking elements of the survey are still flashing red about a slide back into recession, even if the latest output figures probably suggest the risk of an imminent contraction of the German economy has receded a notch.
France narrowly beat Germany in the collapsing manufacturing sector sweepstakes, with a mere 29-month low of 47.6 compared to 48.5 in October. Similar to Germany, France’s service sector is showing far more resilience than manufacturing is, which is why the overall composite, which combines the two sectors, doesn’t look as ugly as you would think, given the above.
The error rate on the flash of these estimates is bigger than that of the eurozone at +/-0.5 for both countries – which one would expect given the smaller datasets involved.
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As if the state of the eurozone wasn’t enough to get you down, things are also looking bad in China, according to the PMIs. November’s flash estimate for its manufacturing sector hit a 32-month low at 48.0, down from 51.0 in October, putting paid to what had been a modest rebound.
Interestingly, it’s the larger companies that are bearing the brunt of it. From Alex Hamilton of Markit Economics:
Looking at the breakdown by company size, large manufacturers recorded a deterioration in operating conditions. By contrast, small companies registered an improvement in growth, perhaps in response to government policies aimed at tackling the credit squeeze facing SMEs. The performance of small and large manufacturers in China has followed a similar trend throughout the survey history, with two notable exceptions. First, large companies appear to have benefitted more than smaller firms from the 2008-2009 fiscal stimulus package. Second, small manufacturers felt the brunt of the authorities’ attempts to reign in liquidity over the three-quarter period starting Q4 2010.
By way of graph:
On a positive note, input prices eased for the first time in 16 months, reflecting the fall in the prices of key commodities — though that itself is a sign of the gloom as investors reduce exposure to the asset class in the face of a global slowdown. This does, nonetheless, give the Chinese authorities more wiggle-room, as Hamilton tells us:
The underlying weakness in the PMI data raises the spectre of growth worries outweighing the authorities’ inflation concerns. With PMI data signalling a further easing in price pressures, scope may be growing for the Chinese authorities to loosen policy if conditions continue to deteriorate in China and in key export markets such as the Eurozone.
Final PMI numbers for November will be out on December 1, well in advance of Christmas.
Related links:
Stocks Get Shanghaied, Investors Flee Risk Before Thanksgiving - Forbes
Euro Punched Lower by Series of Jabs – Credit Writedowns
Chinese stimulus *spoiler alert* - FT Alphaville