Edge and Odds

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Edge and Odds

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EUROZONE SERVICES PMI RISES TO 54.1

The eurozone economy registered a mild growth acceleration at the start of the final quarter, with the rate expansion edging up from September’s four month
low. At 53.9, the final Markit Eurozone PMI® Composite Output Index signalled growth for the twenty-eighth successive month, coming in only slightly below the earlier flash estimate of 54.0.

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Output increased in both the manufacturing and service sectors, signalling a broad-based upturn, with rates of growth ticking higher in both cases. Services recorded the slightly sharper expansion of the two for the eleventh straight month. Underpinning the faster expansion of economic activity was a marginal improvement in the rate of increase in new business. New orders rose at the quickest pace for six months, which in turn maintained the pressure on capacity at
manufacturers and service providers alike as highlighted by rising levels of outstanding business.

Rates of expansion edged higher across all of the ‘big-four’ economies, with Spain ranking highest among these for both output and new orders. Although the pace of expansion in France rose to a four-month high, it remained below those seen for the other nations covered by the survey.

With demand and backlogs of work both increasing, job creation was recorded across the currency union for the twelfth straight month in October. Moreover, the rate of increase in workforce numbers picked up from September’s eight-month low. Jobs growth was strongest in Ireland and Germany, while solid increases in employment were also signalled in Italy and Spain. Marginal job cuts were reported in France, although the pace of reduction eased over the month.

Inflationary pressures remained weak during October. Average input costs rose only moderately, as a commodity-related drop in manufacturers’ purchasing costs was offset by higher wages and salaries at service providers. Meanwhile, average output prices fell slightly for the first time in three months.

The Eurozone Services Business Activity Index posted 54.1 in October, up from September’s seven-month low of 53.7 but below the earlier flash estimate of 54.2. The headline index has stayed above the neutral 50.0 mark since August 2013. Business optimism remained positive and in line with that signalled in the prior month.

Ireland was the strongest performer among the nations covered by the survey during October, despite seeing its rate of increase in business activity decelerating to the weakest since February 2014. Solid output growth was also signalled across the ‘big-four’ euro area economies, with mildly stronger expansions seen in each case.

Underpinning the latest rise in eurozone service sector activity were improved levels of new business, rising backlogs of work and increased employment. New orders expanded at the fastest pace since July, while the pace of job creation rose to one of its quickest during the past four-and-a-half years.

Staffing levels were raised further in Germany, Spain and Ireland, with the latter two also seeing their respective rates of increase strengthen. Employment rose in Italy following modest cuts in September, while payroll numbers were broadly unchanged in France.

Average prices charged for services in the eurozone fell slightly during October, having risen for the first time in just over four years in September. Output prices increased in Germany, Spain and Ireland, but fell in France and Italy. Input costs meanwhile rose moderately, with the rate of inflation the fastest in three months but still well below the long-run series average. There were some reports among companies of higher costs reflecting increased wages and salaries.

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CHINA SERVICES PMI UP 1.5 TO 52.0

Caixin China Composite PMI™ data (which covers both manufacturing and services) pointed to a broad stabilisation of Chinese business activity in October. This was highlighted by the Caixin Composite Output Index posting only fractionally below the neutral 50.0 value at 49.9, up from September’s 80-month low of 48.0.
October survey data signalled that a stronger increase in service sector business activity was offset by a further decline in manufacturing output.

That said, goods producers recorded the slowest rate of contraction for four months. Meanwhile, services activity rose at a quicker rate, one that was the most pronounced since July. This was shown by the Caixin China General Services PMI posting 52.0 in October, up from September’s 14-month low of 50.5. Nonetheless, the latest reading was indicative of only a modest rate of growth that was slower than the historical average.

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Service sector companies saw a further rise in total new business during October. In line with the trend for activity, the rate of new order growth picked up from September’s recent low and was solid overall. Panellists that reported greater volumes of new work generally linked this to improved underlying client demand. In contrast, new business placed at manufacturing companies continued to decline, though at a slower rate than in September. Overall new business rose for the first time in three months, albeit fractionally.

Service providers in China continued to add to their payroll numbers in October. The rate of job creation was modest overall, despite edging up to a three-month high. Moreover, employment growth at services companies was not sufficient to offset a further fall in manufacturing staff numbers. Consequently, employee headcounts at the composite level continued to decline in October, though at the slowest rate since July.

October data signalled a reduced amount of unfinished work across China’s service sector, but the rate of depletion was only slight. According to panellists, lower than expected sales had contributed to falling backlogs. In contrast, manufacturing work-in-hand increased for the sixth month running, resulting in a first rise at the composite level since March.

Service providers cut their selling prices for the second month in a row, albeit only fractionally. Manufacturing selling prices also decreased during October. Falling charges in the service sector were recorded in spite of a further increase in cost burdens, the sharpest in eight months. In contrast, a sharp fall in input costs at manufacturing firms meant that composite input prices continued to decline.

Business sentiment at services companies eased to the lowest in ten years of data collection. Relatively soft market conditions and an uncertain economic outlook had reportedly dampened optimism towards the outlook for activity over the coming year.