There is some good news that the flash (preliminary) estimate of the Markit Economics version of the Purchasing Managers’ Index beat the expectations of the analysts, even though the gain was hardly striking. The previous month saw the reading at 52 and this month it is at 52.2. Ordinarily this would be dismissed as essentially flat performance but, right now, Europe is grasping at straws.
Three aspects of this performance can be viewed as welcomed. The first is that, against all odds and expectations, there is growth in the euro zone. None of the prior estimates signaled that gains were imminent. The consensus opinion was that the Markit reading would perhaps be as low as 50 or even slip into contraction territory soon. That there was growth was a welcome shock, albeit one with reservations. The second piece of good news is that much of this rebound was due to improved performance in Germany. The fact is that euro zone recovery is impossible without German strength. The third issue of note is that some of the more stressed nations saw minor improvements. Although France fell deeper into contraction territory, Italy and Spain stabilized a little.
The discouraging news from the Markit report comes from the various sub-index activity, as this is often where the real detail lies. The performance of the new order index was as poor as expected and that reinforces the notion that most of these nations are nervous, cautious and, thus, unwilling to take risks of any substance.
Other sub-index concerns focus on the employment side of things. Layoffs became a concern again and there are more businesses suggesting that they will be reducing the size of their workforce. At this point, it doesn’t appear that mass layoffs are on the way, but even an extended trickle of lost jobs will further hamper the recovery as people become very concerned that they will be next on the chopping block. This makes the business community even more uneasy and leads to more firing. It’s all a very unhealthy cycle.
- Armada Corporate Intelligence