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Economy in Brief

Purchasing Managers See Recession Ahead for the Euro Area
by Louise Curley December 5, 2011

Purchasing Managers released their final estimates for the November services and composite diffusion indexes for the Euro Area today.  Final estimates for manufactures were released last week. Although the Composite index rose slightly from 46.45 in October to 46.96 in November it was still below 50 indicating that the economy was contracting rather than expanding.  The increase in November was due to a rise in the service component from 46.40 in October to 47.53 that offset the decline in the manufacture component  from 47.37 to 46.36,  The first chart shows the service, manufacture and composite indexes for the Euro Area,  together with the shading for the last recession.  It is clear that the recent trends are similar to those that preceded the last recession.

While the composite index for the Euro Area as a whole are pointing toward recession, the indexes for individual countries vary, as can be seen in the second chart.  The index for Spain suggests that Spain is already in recession.  It has been declining for the last six months and in November was down to 38.16.  The index for Ireland, on the other hand, is still in the expanding zone, although it has been trending down.  The indexes for France and Italy increased a bit in November, but the trend here has also been down.   The November index for Germany fell below the 50 mark for the first time since August of 2009.

The Purchasing Managers are in a good position to evaluate future business trends and the indexes based on their views have in fact been good predictors of future business trends. 

Nov 11 Oct 11
Euro Area PMI Diffusion Indexes
  Composite 46.96 46.45
  Manufactures 46.36 47.37
  Services 47.53 46.40
Composite Indexes for Selected Countries
France 46.86 45.56
Germany 49.38 50.31
Italy 44.76 43.05
Ireland 51.19 51.92
Spain 38.16 41.74
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