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Economy in Brief

Euro-Zone Services Activity Maintains Steady Growth
by Carol Stone September 3, 2004

The Euro-Zone Purchasing Managers Index for the service industries edged down in August to 54.47 from 55.31 in July. A narrow range from 54.40 to 55.76 has prevailed for six months now, tracing a steady moderate growth path for service sector activity. These international PMI surveys are conducted by NTC-Research for Reuters, Inc.

Most individual countries have also seen minimal swings in these service industry gauges. That in Germany, a few points lower than most, has crept higher the last few months. In Italy, the opposite is true: its index was over 58 in June, but has slowed to 56.5 in August. Components for the Euro-Zone Total show that employment is picking up while new orders are showing a bit less growth. Expectations have been virtually unchanged over the summer months. Input prices, as seen in the first graph, continue to move ahead.

NTC-Research compiles purchasing manager indexes for the Euro-Zone and other countries for the manufacturing, construction and service sectors of each economy. The firm recently introduced a set of "GDP Indicators" which combines these three sectoral indexes into a weighted average of the three diffusion indexes. NTC analysts then use regression models to scale the index to GDP growth rates.

For the Euro-Zone, the index eased too in August, although it stands several percentage points above year-ago levels. For assessing year-to-year growth prospects, the NTC PMI-based indicator's translation to year-to-year growth aligns fairly well with GDP performance and has a high correlation ratio of 93%. The indicator level runs a 79% correlation with quarterly changes in Euro-Zone GDP. The recent moves in the indicator suggest a further gain in Euro-Zone GDP of 0.5 to 0.6% this quarter and year-on-year expansion of about 2-1/4%, that is, at least maintaining its recent growth rates.

Purchasing Managers Index Percent (>50 = expansion; 
<50 = contraction)
Aug 2004 July 2004 June 2004 Aug 2003 2003 2002 2001
Euro Zone Total 54.47 55.31 55.31 51.99 51.36 51.58 51.63
  Germany 53.54 53.87 52.30 51.78 48.49 48.62 48.87
United Kingdom 56.91 56.22 56.77 57.00 54.84 54.37 51.41
GDP Indicator:              
Euro-Zone Total 54.5 55.5 55.0 50.8 50.6 51.3 50.4
  Year/Year % Change 2.2 2.2 2.3 0.4 0.8 1.0 1.5
  Actual GDP Growth, Year/Year         0.5 0.9 1.6
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