Edge and Odds

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Edge and Odds

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EUROZONE SERVICES PMI STEADY AT 54.0

The latest PMI data showed the rate of expansion in eurozone economic activity slowing slightly at the start of the third quarter. However, growth remained close to June’s four-year high, with the extent of the easing less marked than that signalled by the earlier flash estimate.

The final Markit Eurozone PMI® Composite Output Index posted 53.9 in July, down from 54.2 in June and above the earlier flash estimate of 53.7. Solid expansions of output were signalled in both the manufacturing and service sectors, with the slightly faster rate of growth at service providers.

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Spain registered the best rate of economic growth of the ‘big-four’ eurozone nations, with the pace of expansion moving back towards April’s 101-month record. Growth in Germany remained solid and steady, whereas decelerations were signalled in both France and Italy.

Underpinning the latest rise in eurozone economic activity were improved inflows of new business, higher employment and rising levels of outstanding business. Although growth of new work received was unchanged from June’s four-month low, it was still above the average for the current sequence of expansion that started in December 2014.

Jobs growth was registered for the ninth consecutive month in July, albeit the weakest since February. Broadly similar rates of increase were signalled at
manufacturers and service providers alike.

The current sequence of job creation is the longest achieved since 2011. Germany, Italy and Spain all reported higher employment, with the rates of increase accelerating in Germany (five-month high) and Spain (100-month record). Jobs growth in Italy was only marginal and the least marked since February, while cuts were seen in France following a four-month sequence of rising employee headcounts.

On the price front, the July surveys provided some positive news on the prospects of a moderate upturn in inflationary pressures. Selling prices were only
fractionally lower over the month, suggesting a possible near-term end to a sustained period of decreases. Input prices also continued to rise, reflecting rising wages and the weakening euro exchange rate.

The eurozone service sector continued to expand at a solid pace at the start of the third quarter. Business activity rose at a pace close to June’s four-year record, as the growth rate of new business remained among the fastest seen since mid-2011 and further job creation was registered.

The Eurozone Services Business Activity Index edged down to 54.0 in July, from 54.4 in June, but above the earlier flash estimate of 53.8. The headline index has now signalled expansion throughout the past two years.

Output increased across the big-four national service sectors in July. By far the sharpest rate of expansion was in Spain, where activity rose at the second-fastest pace since November 2006 (bettered only during that period by April 2015). Growth in Germany held steady and was slightly above the second quarter average.
In contrast, rates of output expansion slowed in both France and Italy, to three- and four-month lows respectively. Meanwhile, new order inflows strengthened in Germany, Italy and Spain, but slowed in France.

Job creation was registered in the eurozone service sector for the ninth straight month in July. Although the rate of increase was the slowest since January, it was still broadly in line with the average for the current sequence of jobs growth. Germany and Spain registered solid and accelerated increases in employee numbers, whereas cuts were seen in France and Italy following rises in recent months.

The latest increase in employment reflected the ongoing upturn in the sector, rising backlogs of work and expectations of future output growth. Although business optimism dipped to a seven-month low, it was broadly in line with the average for the current recovery in services output. Sentiment improved in Italy and Spain, but dipped in France and Germany.

Average cost burdens at eurozone service providers increased for the sixty-eighth consecutive month in July. In contrast, average selling prices fell for the forty-fourth straight month, albeit only marginally and to one of the weakest extents during that sequence.

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CHINA SERVICES PMI FIRMS UP TO 53.8

Caixin China Composite PMI™ data (which covers both manufacturing and services) signalled a further increase in Chinese business activity during July. That said, the Caixin Composite Output Index posted only fractionally above the neutral 50.0 mark at 50.2, down from 50.6 in June, and pointed to the weakest rate of expansion in 14 months.

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The slower rate of overall output expansion was predominantly driven by the manufacturing sector, which registered the quickest reduction of output since November 2011. This contrasted with a further increase in service sector business activity, where the rate of growth accelerated to an 11-month high. This was highlighted by the Caixin China General Services Business Activity Index posting at 53.8 in July, up from June’s recent low of 51.8.

The stronger rise in service sector activity was supported by a further increase in new business volumes in July. Furthermore, the rate of new order growth accelerated to a solid pace that was the second-fastest in eight months. Anecdotal evidence suggested that stronger underlying client demand and new customer wins led to increased new work at service providers. In contrast, new work placed at manufacturers declined solidly in July, after a slight increase in June. As a result, new business at the composite level rose at a fractional pace that was the slowest in the current 15-month sequence of expansion.

Employment at service sector companies continued to increase in July, with a number of surveyed companies attributing growth to planned company expansions. Moreover, the rate of job creation picked up slightly since June. However, staff numbers continued to decline at manufacturing firms, albeit at a slower pace than in the previous month. At the composite level, employment declined for the second month in a row, though only marginally.

Higher workforce numbers helped service providers to reduce their level of unfinished business for the sixth successive month in July, and at a modest rate. Meanwhile, reduced production was linked to a slight increase in the level of work-in-hand at manufacturing companies. Overall, composite outstanding business fell for the fourth successive month, albeit slightly.

Average input costs continued to rise at service providers in July. Although the rate of input price inflation picked up slightly since June, the rate of increase remained slower than the series average. However, a sharp decline in cost burdens faced by manufacturers led to a modest reduction in input prices at the composite level in July.

Service sector companies increased their output charges in July, following a slight reduction in June. Though modest, it was the quickest rate of inflation seen since September 2013. Manufacturers meanwhile discounted their tariffs, and at the sharpest rate in six months.