The outlook for US manufacturing and services sectors continued to reflect robust expansion in last week’s flash indices, with both sectors coming in at 52.3. However, in sharp contrast the Euro area struggled, with all eyes on France and Germany as they released key indicators which came in worse than expected. The economic divergence between the US and Eurozone is getting harder to miss. That gap is becoming a bit more contested with Japan facing surging inflation and Norway experiencing an uptick in wage growth expectations.
The new Purchasing Managers’ Index (PMI) data indicate that the U.S. manufacturing sector is booming. The index is now up to 52.3. This number represents real growth in the industry, meaning more production and better fortunes for businesses. The US services sector came in with a hot PMI of 52.3. That is good news, and that means that the service industry is booming too.
The Euro area finds itself in recession. The Euro area composite PMI dropped under the all-important 50 mark, coming in at 49.5. This significant decline is the first, flagging a contraction in all economic activity. This fall was largely attributable to worse than anticipated results from the services sectors in France and Germany. France’s services PMI fell to 47.7, while Germany’s dipped to 47.2, both signaling a contraction in these key areas.
Even with these disappointments, manufacturing has still been quite resilient for both France and Germany. This manufacturing resilience raises hope that even as the services sector falters, the manufacturing sector could offer an anchor for the Eurozone economy. The Euro area manufacturing PMI was aided by front-loading, as stockpiling reached an all-time high in May.
On the equities front, US markets were able to close broadly flat even with roller coaster moves in treasury yields. Focusing on the Fed, the 10-year US Treasury yield fell from a recent high of 4.62% to around 4.52%. At the same time, the 30-year yield dropped from 5.15% to 5.04%. These movements are indicative of a jittery investor sentiment amid both boom and bust economic cues.
Across the Pacific on Friday, Japan surprised markets with another jump in core inflation, which rose to 3.5% y/y, above expectations. This rise in inflation may prompt future actions from the Bank of Japan as it navigates the delicate balance of economic recovery and price stability.
Currently, Norway’s predicted wage growth for 2025 is 4.4%. That’s in line with our own central wage norm and Norges Bank’s own forecasts. This projected wage growth is expected to help drive higher consumer spending, supporting overall economic growth in Norway.
3.7% Japan’s expectations of wage growth in 2026 remain unchanged. This is indicative of a long-running upbeat outlook on income growth despite an increasing fearful sentiment toward inflation.