Recent Updates

  • Hong Kong: Personal Bankruptcy Petitions (Jun); Pakistan: Credit by Borrowers (Jun); China: Fixed Assets Investment (Jun), Construction Output (Q2)
  • US: GDP by Industry (Q1)
  • Canada: Retail Trade (May), CPI (Jun)
  • Thailand: Trade (Jun); China: Loans from Financial Institutions (Jun); Korea: Trade in Goods (Jun); Taiwan: Export Orders (Jun)
  • more updates...

Economy in Brief

EMU Services PMIs Move Up
by Robert Brusca  December 5, 2012

Among the original EMU members reporting service sector PMI details, Ireland and Italy were the only reporters with slippage posted in November. The overall EMU reading advanced to 46.74 from 46.04 a metric still pointing to declines in service sector activity, as any reading below '50' signals contraction in the diffusion index lexicon.

Despite tailing off in the month along with EU member UK both Ireland and the UK are the sole European nations whose services sectors were actually expanding (readings above '50') in November in the Markit diffusion index framework.

We can contrast the e-Zone service sector which has been contracting for 10-months in a row to the US services (actually, non-MFG) sector which has been expanding for 35-months in a row. The UK has posted its weakest services PMI in 23 months, although its sector is still expanding.

We have seen a similar discrepancy between Europe's MFG PMI and the US PMI; the US PMI for MFG has only just began to post a contraction in November; Europe has a legacy of 16 contracting observations in a row in the e-Zone.

The service sector is the larger part of the employment sector of most modern economies. For European nations these sectors have been in a declining mode for some time. In the US the service sector has showed positive growth for a very long time but job growth in the sector has remained weak.

Europe's MFG sector remains weak and both services and MFG indicators point to declines in activity. That combination should set the fate for the economy. Yet Europe's strongest economy, Germany has almost clawed its way back to neutral in its service sector reading this month. At 49.68 it is very close to a neutral reading for services. The problem with Germany is that it has kept its strength for itself as its imports have not provided much boost to spur domestic demand in its more beleaguered neighbors in the e-Zone.

As evidence of this Eurozone retail sales fell for the third consecutive month in October. Sales volumes fell 1.2% in Oct month-to-month. Sales dropped for both food and non-food items. Despite Germany's economic resilience its non-motor vehicle retail sales fell by 3.1% mo/mo in Oct.and are lower by 3.2% year-over-year. For EMU as whole sales volumes are down by 1.6% year-over-year. There are no early reporting Zone members with retail sales up over 12-months. While non EMU members UK, Sweden and Norway post three-months declines in retail sales volumes each still shows an increase over 12-months. The slump seems to have been longer in getting to them.

On balance The bump up in the e-Zone service sector PMI's this month is a bit of good news but only a bit. The strongest short-term rising PMI is from Italy and is hard to take that at face value. For the rest we have impacted service sectors and despite all the monthly up-ticks they would seem to be a respite from further weakness rather than the start of a rebound. As of yet there are no government stimulus programs, no real upturn in foreign growth and what appears to be still-languishing domestic demand across the Zone, leaving little basis for the belief in a rebound.

The news today from Ireland was that it was looking to undertake even more austerity to keep its budget in line and had queued up some of its social welfare programs for cutting. Ireland has been a relative success story in the Zone. It is hard to imagine why one would want a country with that kind of progress making real economic cuts to hit some arbitrary budget number but such is Europe. And such are the promises countries have made to each other. In such an environment where economic performance is more important that changes in structure or actual conduct we can expect to see more odd developments before things turn around.

EMU Services Sector
Nov-12 Oct-12 Sep-12 3-mo 6-mo 12-Mo Queue-%
Euro-Area 46.74 46.04 46.15 46.31 46.87 47.67 10.1%
Germany 49.68 48.38 49.69 49.25 49.38 50.94 22.8%
France 45.80 44.56 44.98 45.11 47.09 47.97 6.7%
Italy 44.60 45.99 44.45 45.01 44.20 44.00 12.8%
Spain 42.40 41.19 40.21 41.27 42.47 42.94 15.4%
Ireland 56.05 56.13 53.90 55.36 52.76 51.64 57.7%
EU Only
UK (CIPs) 50.16 50.58 52.24 50.99 51.49 52.88 12.1%
  US NONFMG ISM 54.70 54.20 55.10 54.67 53.73 54.39 60.4%
percentile is over range since May 2000
EU Commission Indices for EU and EMU
EU Index Nov-12 Oct-12 Sep-12 3-mo 6-mo 12-Mo Queue-%
EU Services -9 -12 -13 -11.07 -10.37 -7.44 4.7%
EMU Nov-12 Oct-12 Sep-12 3-mo 6-mo 12-Mo Queue-%
Services -12 -12 -12 -12.00 -10.50 -6.25 7.4%
Cons Confidence -27 -26 -26 -26.33 -24.33 -22.17 4.7%
Consumer Confidence Nov-12 Oct-12 Sep-12 3-mo 6-mo 12-Mo Queue-%
Germany -10 -9 -10 -9.93 -7.42 -4.13 42.3%
France -28 -30 -28 -28.53 -25.72 -24.62 10.7%
Italy -40 -37 -39 -38.70 -38.55 -36.38 0.7%
Spain -38 -36 -37 -36.77 -34.05 -29.60 6.0%
UK -14 -22 -19 -18.33 -18.87 -20.85 28.9%
percentile is over range since May 2000
large image