The eurozone private sector economy lost growth momentum in May, with rates of expansion in both output and new business slowing to three-month lows. The trend in employment fared better, with headcounts rising at the fastest pace in four years. There was also positive news on the prices front for a region many consider being under threat from possible deflation, as input costs rose at the strongest pace since April 2012 and the rate of selling price reductions slowed further.
The final Markit Eurozone PMI® Composite Output Index posted 53.6 in May, down from 53.9 in April, but above the earlier flash estimate of 53.4. The upward revision between flash and final readings mainly reflected stronger than previously estimated output growth in France. Output rose in both the eurozone manufacturing and service sectors during May, with rates of expansion slowing in both cases. Business activity growth at service providers remained a shade ahead of that signalled for manufacturing production.
Among the ‘big-four’ economies, Spain remained well ahead of the chasing pack despite seeing a slight deceleration in its pace of expansion. Italy and Germany also saw softer rates of growth for output and new orders than in the prior month. France achieved some catch-up on the growth front. Its rate of expansion in economic activity accelerated to a three-month high, underpinned by the fastest inflows of new business since August 2011.
Employment rose for the seventh consecutive month in May, with the pace of jobs growth hitting a four-year record. Rates of increase in payroll numbers accelerated in Germany (two-month high), France (41-month high) and Spain (94-month high), and also remained solid in Italy despite easing slightly. Higher employment was a key factor underlying a stabilisation in the level of outstanding business following increases in each of the prior three months.
Associated increases in staff costs also contributed – alongside rising import costs due to the euro’s depreciation and higher oil prices – to the steepest
increase in average input costs since April 2012. Although average output charges continued to fall in May, the rate of decrease was only marginal and the
joint-weakest during the current 38-month sequence of reduction. Only Germany reported an increase in average selling prices, the sharpest since January 2014. Output charges held steady in Spain, but fell in France and Italy.
Eurozone service sector business activity rose at the slowest pace in three months during May, as growth of new orders moderated and business optimism† slipped to a five-month low. At 53.8 in May, from 54.1 in April, the Eurozone Services Business Activity Index signalled an expansion of output for the twenty-second successive month.
Spain was the stand-out performer of the nations for which data were available, recording by far the steepest increases in both output and new orders. Business activity growth was evenly distributed between Germany, France and Italy, with rates of expansion broadly similar in each case. However, France was the only country among the ‘big-four’ to report a stronger increase in either output or new orders (registering faster expansions in both).
Eurozone service sector employment rose for the seventh month running in May, with the pace of job creation hitting a four-and-a-half year high. Increased staffing levels aided efforts to clear outstanding business, leading to the first decline in backlogs of work during the year-to-date.
Accelerated growth of employment was registered in Germany, France and Spain. Although job creation slowed in Italy, employment nonetheless rose for the fourth straight month.
May’s survey highlighted an acceleration in cost inflation, with input prices rising at the strongest pace since December 2012. Some service providers noted higher staff costs and a recent increase in oil prices. In contrast, average service charges fell for the forty-second consecutive month in May. However, the decline was the smallest recorded since March 2012. Of the nations for which data were available, only Germany reported an increase in average selling prices.