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Economy in Brief

Euro-Zone Service Sector PMI Moves Narrowly in April, Maintaining Modest Growth
by Carol Stone May 4, 2005

Business activity in European service industries maintained a stable rate of modest expansion in April, according to the purchasing manager surveys conducted by NTC Research and reported today by Reuters, Inc.

The overall services business activity index registered 52.76, off just slightly from March's 52.99. This index, a "net balance" indicator (% rising - % falling) has hovered around 53 for the last six months after slowing pretty consistently over the previous year. It had reached a peak of 57.5 in November 2003. Among the associated measures, new business and outstanding business both resemble the pattern in the "business activity" gauge, while employment has actually had a slight firming tendency over this general 18-month period.

An interesting facet of the European-wide information is an apparent worsening of profit margins. The index for prices charged narrowed by 1.9 points and fell below 50, showing that selling prices rose at fewer companies than they fell. But input prices increased on balance, from 57.72 to 57.98. This is not unusually high for this measure, but it does suggest that operating costs are exerting some pressure on these service producers. After five months of relative improvement in margins, in a single month this spread between selling prices and input prices lost some 45% of that improvement. The input prices, not surprisingly, are strongly influenced by import prices and other wholesale prices. In fact, correlation ratios between this services input price index and various price indicators, including the Euro-Zone import price index, producer price index and producer price index for energy, all run in a range of 80-90%. So rising energy prices as well as prices of other materials are weighing on service sector performance at the same time that these firms are unable to sustain rising selling prices to customers.

Among various countries, recent business activity performances have differed. As seen in the table below, Germany's business activity index fell by about half-a-point in April, while that in France rose more than 3 points. The Italian index was off 4.34 points and in fact, with a reading below 50, showed an outright contraction in its service sector.

PMI for Service Sector April 2005 March 2005
Euro-Zone* 52.76 52.99
Germany 51.32 51.80
France 57.69 55.44
Italy 48.35 52.69
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