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Economy in Brief

Service Sector Still Pummeled in Europe…France Excepted
by Robert Brusca January 4, 2008

The chart tells a clear story of malaise and decline in Europe’s service sector. Survey readings for services industries in the overall community are weak. Individual countries are weak across the board with the exception of France which bucked the trend last month by rising when other countries’ indices fell hard. This month France’s service sector index has edged lower but it is vastly stronger than in most other major EMU nations. The UK, an EU member, is also showing pronounced sector weakness.

If we position the current readings in their respective ranges of values since May of 2000 we find all are below their range midpoints except France which stands in its 60th percentile. Germany and the overall EMU measure are in their respective 44th to 45th percentiles. Spain, Ireland and Italy are roughly in the bottom third of their respective ranges with Italy even weaker than that.

The service sector is an important engine of job growth in Europe as it is in the US. And concerns over the euro’s strength and the fallout from the financial sector problems in the US are problems that are in play. The MFG sector in Europe has actually bounced from its lows over the past two months in the face of such pressures. Services however, continue to weaken. The ECB is on the spot with another strong inflation reading in December that defies it to take anti-inflation steps as oil prices spurt and while the euro is screaming to stronger values. The actual weakness in the economy may seem to make the ECB’s job that much harder, but in fact actual weakness makes ECB temperance less of an act of bravado. Its failure to hike rates in the face of inflation and spare the euro further stress is easier if the economy is showing some real weakness up front. The service sector is giving the ECB a real excuse for playing the waiting game- right or wrong.

NTC Services Indices for EU/EMU
  Dec-07 Nov-07 Oct-07 3-Mo 6-Mo 12-Mo Percentile
Euro-13 53.14 54.14 55.81 54.36 55.62 56.58 43.5%
Germany 51.24 53.09 55.08 53.14 55.12 56.49 44.9%
France 58.89 59.15 58.48 58.84 58.44 58.60 60.4%
Italy 49.71 50.77 55.27 51.92 54.04 54.86 15.7%
Spain 50.99 50.69 52.45 51.38 52.72 54.45 31.1%
Ireland 53.53 52.81 56.48 54.27 55.13 57.18 36.7%
EU only              
UK 52.36 51.95 53.08 52.46 54.78 56.25 42.5%
percentile is over range since May 2000    
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