Edge and Odds

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Edge and Odds

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EUROZONE COMPOSITE PMI AT 52.8, ORDERS STRONG

The eurozone economy saw further solid growth of output in June, rounding off the best quarter of economic expansion in the region for three years. The outlook for the second half of the year was mixed, however, as signs that the upturn in output was losing momentum were offset by stronger inflows of incoming new business.

At 52.8 in June, unchanged from the flash estimate, the final Markit Eurozone PMI® Composite Output Index signalled expansion for the twelfth consecutive month. Although the rate of increase eased for the second month running to its lowest in the year so far, PMI data for the second quarter as a whole are consistent with a mild acceleration in GDP growth to around 0.4%. New business levels, meanwhile, rose at the fastest pace in over three years.

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Manufacturing production and services business activity rose at similar rates during June, with both sectors seeing output growth slow over the month.

The upturn in economic activity in Italy accelerated – reaching a three-year high – underpinned by strengthening order inflows. Although output growth in Germany ticked lower for the second month in a row, the pace of expansion was still in line with the average for the current 14-month sequence of increases. Growth of output and new orders also slowed slightly in Spain. France remained the major negative spot on the eurozone growth picture, recording the sharpest contraction of output for four months in June. Business activity and new orders contracted in both the manufacturing and service sectors.

Eurozone employment rose moderately for the third month running in June, with job creation registered in Germany, Italy, Spain and Ireland. Further cuts were reported in France, continuing a near-constant sequence of reduction seen since early-2012.

Input cost inflation hit a seven-month high in June, with increases in input prices reported by manufacturers and service providers. There were reports of higher oil prices and staff costs. Meanwhile, the rate of decline in output charges eased, as factory gate price inflation ticked higher and service sector charges fell at a slower pace.

Business activity in the eurozone service sector expanded for the eleventh successive month in June. The Eurozone Services Business Activity Index dipped to a three-month low of 52.8, from 53.2 in May, but nonetheless provided a solid end to the best quarter for three years.

The outlook for the sector also remained relatively bright, with the growth rate for new orders accelerating to its highest since May 2011 and business confidence hitting a three-month peak. A third successive month of modest job creation also suggested that services companies remained optimistic regarding the coming months.

Business activity and new orders rose in Germany, Italy, Spain and Ireland. Ireland again recorded the steepest expansions, with the growth rates in output and new orders at or close to seven-year peaks. This underpinned a stronger gain in payroll numbers. Germany was in second position in the output growth table, despite seeing rates of expansion in activity and new business ease slightly from May’s highs. German service providers also reported solid job creation. Spain saw a modest increase in employment, despite slower rates of increase for both demand and output.

The performance of the Italian service sector continued to brighten in June, with business activity and new orders rising at the sharpest rates since November 2010 and July 2007 respectively. This failed to result in job creation, however, with staffing levels broadly unchanged over the month.

France remained the main drag on the generally positive performance of the eurozone service sector, being the only one of the big-four nations to record a contraction in either business activity or new orders. Employment fell for the eighth successive month.

Input price pressures continued to increase at eurozone service providers in June, as costs rose at the fastest pace since November 2013. This mainly reflected higher oil prices and staff costs. Strong competition prevented companies from passing the increase on to clients, however, as selling prices fell for the thirty-first month running.image

HSBC CHINA COMPOSITE PMI AT 52.4 IN JUNE

HSBC China Composite PMI™ data (which covers both manufacturing and services) signalled a second successive monthly increase of Chinese business activity in June. Moreover, the rate of expansion accelerated to the strongest in 15 months, as signalled by the HSBC Composite Output Index posting at 52.4 in June, up from 50.2 in May.

June data indicated that a solid rise in activity at service providers and renewed output growth at manufacturers supported the faster expansion of output at the composite level. Furthermore, manufacturing output increased at the strongest pace since last November, while services activity growth was the quickest since March 2013. The latter was signalled by the HSBC China Services Business Activity Index posting at 53.1 in June (up from 50.7 in May).

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Reports from panellists suggested that activity rose in line with stronger inflows of new business.

Total new work expanded at an accelerated and robust pace at service providers in June, while manufacturers saw the first increase in new business for five months. Furthermore, the expansion of new orders at service providers was the strongest since January 2013. As a result, new work rose solidly at the composite level.

Service sector firms increased their payroll numbers for the tenth successive month in June, and at the second-fastest rate in 2014 so far. Reports from panellists suggested that firms hired additional staff to help meet rising new workloads. Meanwhile, staff numbers fell again at manufacturing companies, albeit at the slowest rate in three months. Consequently, employment at the composite level was little-changed from the previous month in June.

Backlogs of work at Chinese service providers rose for the first time since January 2012 in June. Outstanding business also increased at manufacturers and for the first time since January. That said, the rates of accumulation were marginal in both cases. Anecdotal evidence mentioned that unfinished work rose due to increased volumes of new business.

Input costs increased for the first time in six months at manufacturers, but at a modest rate. Cost burdens faced by service providers also increased in June, and at a moderate pace that was the fastest in three months. However, the rates of input price inflation remained weaker than the historical averages for both sectors.
Following a slight increase in May, output charges set by manufacturers were broadly unchanged in June.

Meanwhile, service providers cut their selling prices for the third month running, amid reports of competitive market pressures. That said, the rate of discounting was similar to that recorded in the previous two months and only marginal. Service sector firms were generally optimistic towards the 12-month business outlook in June. That said, the degree of positive sentiment remained historically weak, despite improving upon May’s 11-month low.