Eurozone PMI Lowest in Over a Year

As a minor and perhaps fleeting warning about the eurozone’s economic situation, its Purchasing Managers’ Index (PMI), as reported by Markit, hit its lowest level in over a year.

There have been worries that the global economy could reach a slow patch, or even a recession, as consumer spending falters, oil price increases take hold and early stages of inflation and trade frictions threats dampen some activity.

According to Markit:

Flash PMI survey data showed business activity and new order growth slowing in May, with hiring and backlogs of work likewise exhibiting slower rates of increase. The survey also indicated that companies have become less optimistic about the outlook. There was mixed news on price trends, as cost pressures increased but selling price inflation slowed.

The IHS Markit Eurozone PMI fell from 55.1 in April to 54.1 in May, according to the flash reading which is based on approximately 85% of usual replies. By remaining well above the 50 no-change mark, the PMI continued to signal robust growth of business activity in the euro area. However, the latest increase was the weakest for one-and-a-half years, the rate of expansion having cooled for a fourth successive month. It deteriorated in both manufacturing and services, down to 18-and 16-month lows respectively

U.S. economic growth has slowed to about 2.5% improvement in the gross domestic product. Most economists do not expect that to get better this year. Next year could have a tiny pick-up, but the same forces that may have slowed the eurozone are also in play.

The primary short-term worry is oil prices, which could undermine some critical parts of the economy, particularly among consumers who use gasoline, industries like airlines that rely on oil-based fuel and home heating and a large number of industries that depend on petrochemicals.

The eurozone PMI may well be more than a one-month problem, particularly if it continues well into the summer.