Eurozone Growth Accelerates, Suggesting Continued U.S. Growth Prospects

By Patrick Catania, Industry Consultant

For many years I have watched the Eurozone economies (aka “European Union”) move in tandem with the U.S. economy. Frequently, the U.S. economy will trend in one direction followed by the Eurozone economies moving in the same direction just weeks behind, or vice versa.

Recent data from the U.S. Bureau of Economic Analysis (BEA) show consumer spending was essentially flat in May, but there are two things to consider when viewing this data. First, the level of spending remains above pre-pandemic levels. Second, the spending tally from April was revised upward, from 0.5% to 0.9%1. In other words, consumers are still spending more than enough to keep the economy growing. Somewhat surprisingly, business activity in the Eurozone accelerated at the fastest rate in 15 years in June, driven in part by rollbacks in pandemic restrictions throughout the region.

The U.S. Composite PMI (Purchasing Managers’ Index) pulled back to 63.7 from 68.7 in May2, (anything above 50 indicates expansion). PMI is used mostly by businesses to estimate future demand for their products. Traders and investors, though, can use it just like GDP — showing how prosperous an economy appears at a single point in time, and adjusting their strategies accordingly. The manufacturing PMI subcomponent hit 62.13, a record for the index. Eurozone Composite PMI reached 59.54 in June, up from 57.1 in May (again, anything over 50 indicates expansion). The services PMI reached 58, a 41-month high, an indication that the recovery is broadening; and the manufacturing PMI hit 63.1. Again, the parallels to the U.S. economy are worth noting.

Since the pandemic’s peak negative impact on the economy in March 2020, the number of U.S. domestic air passengers has risen steadily, and data show that number is now reaching pre-pandemic levels. The Independence Day travel surge has completed the round trip back to 2019 numbers. At the same time, the Eurozone has recently relaxed travel restrictions affecting U.S. travelers, so I anticipate international air traffic will grow rapidly between now and the fall.

A word about inflation. We have all likely experienced higher prices in our purchasing; prices for many goods from gasoline to food and home improvement materials have been rising. While the recent BEA numbers show a jump of 0.5% in May to an annualized 3.4%, remember the Fed target rate of 2% for inflation is an average rise taken over many months. In a recent statement, the Fed noted: “With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent.”5 As the impact of the pandemic recedes, I expect supply chains to fill and prices of core goods to retreat in the coming months. A similar pattern has emerged in the Eurozone, and central bankers there have taken the same course of action thus far.

I have drawn these comparisons between the U.S. and the Eurozone simply to highlight the fact that it is beneficial to broaden our analytical perspectives to get a better picture of our own markets and economy. The relationship between the U.S. and the Eurozone economic performance has been very close for many years. In my opinion, the Eurozone economies have been affected even more dramatically than the U.S. economy by pandemic influences, so the rebirth and performance of the Eurozone may even surpass that of the U.S. in the coming months.

About the Author: Patrick Catania holds undergraduate and graduate degrees in accountancy and international business. With more than 40 years experience in both foreign and domestic financial markets, he advises clients on current trends and developments on an ongoing basis.


5Federal Reserve Board - Federal Reserve issues FOMC statement

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