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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
Services:              
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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