Edge and Odds

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Edge and Odds

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EUROZONE SERVICES PMI STEADY AT 54.2

November saw a further positive step forward for the eurozone economic recovery, with rates of expansion in output, new orders and employment all accelerating to be at, or close to, the fastest for four-and- a-half years. A further modest increase in backlogs of work also suggests that solid growth may continue at the end of the year.

The final Markit Eurozone PMI® Composite Output Index rose to 54.2 in November, up from 53.9 in October, to stay above the no-change mark of 50.0 for the twenty-ninth successive month. The average reading so far during the final quarter (54.1) is slightly above that for the prior quarter (53.9).

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November’s expansion in economic activity was evenly distributed across the manufacturing and service sectors, with the growth rate in service sector output only negligibly above that achieved at manufacturers. Service sector new business rose at the fastest pace in four-and-a-half years, while the increase in manufacturing new orders was the quickest since April 2014.

All of the nations for which composite PMI data are available reported an expansion in economic activity during November, with only France failing to register an acceleration in growth. Ireland remained firmly at the top of the PMI rankings, followed by Spain, with rates of expansion at four- and three-month highs respectively. The German economy expanded at the fastest pace since March, while Italian output rose to the greatest extent for three months.

Eurozone private sector employment rose for the thirteenth successive month in November, as manufacturers and service providers both raised capacity in response to rising new order volumes and accumulations of backlogs of work. Jobs growth accelerated in Italy, Spain and Ireland, and held steady at a solid pace in Germany. Although France reported further cuts, the rate of reduction remained only marginal (albeit slightly sharper than in October).

The November survey showed ongoing deflationary pressures, with output prices declining slightly for the second straight month. Meanwhile, average costs
barely rose, as a sharp reduction in manufacturers’ input prices (a by-product of falling global commodity prices) offset a solid increase in service sector costs.

Growth of eurozone service sector business activity ticked higher in November, reaching a three-month peak and remaining among the fastest registered during the past four-and-a-half years.

The Eurozone Services Business Activity Index posted 54.2 in November, above October’s 54.1 but below the earlier flash estimate of 54.6. The headline services index has now remained at a level signalling expansion for 28 months.

November saw business activity rise across the nations for which data are collected, led by a further strong increase in the Irish service sector. Spain and Germany also saw marked output growth, with rates of increase at three- and 14-month highs respectively.

The rate of growth in Italy, meanwhile, was broadly unchanged for the third straight month and remained above its long-run survey average. Although service sector output continued to advance in France, the rate of expansion was only slight and weaker than October’s four-month peak.

The ongoing expansion of the eurozone service sector encouraged further job creation, with staffing levels rising at the quickest pace since May. Part of the increase reflected further accumulation of backlogs of work, which expanded for the sixth successive month. Employment rose in Germany, Italy, Spain and Ireland, in contrast to further modest cuts in France.

November’s survey signalled a second successive monthly decrease in average service charges in the eurozone. Only Germany and Ireland reported increases in selling prices.

Meanwhile, input costs continued to rise at a relatively mild rate, with the latest increase the weakest for three months and well below the historical series trend. Input price inflation accelerated in Spain and Ireland, but eased in Germany, France and Italy.

CHINA SERVICES PMI DROPS TO 51.2

Caixin China Composite PMI™ data (which covers both manufacturing and services) indicated that business activity in China increased for the first time in four months in November. That said, the rate of expansion was only marginal, as signalled by the Caixin Composite Output Index posting 50.5 in November, up from 49.9 in October.

The renewed increase in overall Chinese business activity was supported by a further rise in service sector activity in November. That said, the pace of expansion eased since October and was only modest. This was signalled by the Caixin China General Services Business Activity Index posting at 51.2 in November, down from October’s three-month high of 52.0. Meanwhile, manufacturing production stabilised in November, following a six-month sequence of reduction.

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After a solid expansion in October, total new work placed at Chinese service providers rose only slightly in November. According to panellists, relatively weak market conditions had softened client demand in the latest survey period. Furthermore, September 2015 excepted, the latest increase in new work was the slowest seen in 16 months. In contrast, manufacturing firms saw a further decline in new business during November. Though modest, the decrease in new order volumes at manufacturers offset the increase at service providers, and led to a slight fall in composite new business.

Employment at Chinese service providers continued to increase in November. However, the rate of job creation eased to a marginal pace that was the second-weakest for a year-and-a-half (after August 2015). Anecdotal evidence suggested that relatively subdued business conditions had contributed to softer payroll growth. Goods producers continued to cut their workforce numbers in November, albeit at the weakest rate in six months. Overall, staffing levels declined for the sixth successive month at the composite level, though the rate of job shedding was only slight.

Outstanding business continued to fall across the Chinese service sector in November, as companies commented on a general lack of pressure on operating capacity and increased efficiency. The rate of depletion quickened slightly from October to a modest pace. Backlogs of work meanwhile rose again at manufacturing companies and at a moderate pace. Consequently, the level of work-in-hand (but not yet completed) was little-changed at the composite level.

Increased competition for new work led services companies to reduce their selling prices for the third month in a row in November. That said, the rate of discounting was only slight. Manufacturers also cut their charges in November and at a sharp rate. As a result, output prices at the composite level fell at a solid pace that was the steepest seen in 20 months.

Service sector optimism towards the 12-month business outlook improved only slightly from October’s record low, as a number of companies expressed concerns over a challenging economic outlook.