Tuesday, May 1, 2012

Divergence of US and Eurozone manufacturing trends

The equity market went vertical this morning on the back of the US ISM Manufacturing PMI coming in stronger than expected (54.8 vs 53 expected).

SP500 futures intraday

As discussed a couple of months back, US manufacturing will continue to exhibit strong growth primarily due to relatively low labor costs. What's striking about this rise in the manufacturing PMI is the divergence between the US and the Eurozone manufacturing trends (chart below). This does not mean the US has decoupled from the Eurozone's crisis (because manufacturing is still a relatively small component of the US output). But it does provide further support to the forecasts that the US will manage to avoid another recession, at least in 2012.

Manufacturing PMI - US vs. Eurozone (Bloomberg)

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