Euro-Area Service Sector In Recovery Mode But Losing Momentum

The ECB sets its rate-targeting sights on the Euro-Srea's HICP a consumer prices measure not on the PPI which is producer prices measure. But producer prices are showing some inflation escalation despite this month's result which say the PPI fall month to month by a thin 0.1%.

The services sector is an import sector for the modern economy. It may not have the flash of the manufacturing sector but it is the job creator and it can tell a lot about underlying economic conditions. In EMU in June the various country readings for services are mixed- most are lower but the levels for reading still seem solid in their historic ranges. Still, Germany's index has dropped for two straight months and Italy's index had fallen for three straight months. Among the five economies for which we get detail, four of them and the overall index fell in June. Still these indices do not sit at low range levels- Italy is the weakest in its 57^th range percentile and France is the strongest in its 92^nd range percentile.

All seems well on that score. But on a stricter standard, the ranking of the indicators in their queue of historic values, the standings drop to percentile readings of 36 for Italy, 42 for Spain and 47 for Ireland. France is still strong on this basis at a 92^nd percentile standing Germany is at its 68^th percentile and the overall The UK, an EU member, stands in the 31st percentile on this measure. The Euro-Area reading stands in its 73^rd percentile which is not bad.

These queue rankings more clearly give us the haves and the have-nots. The queue standings give us a better sense of how the strong the reading is relative to historic values. While all are readings are above the 50 'neutral' mark, the service sector almost always expands so that is not so telling. But for the UK, Italy, Spain, and Ireland their service sectors are stronger than their current readings more than half the time- much more than that for some (two-thirds of the time for the UK).

Despite posting positive readings above neutral the service sector is not anywhere near full strength in most of these nations let alone 'recovered.' In France and in the UK consumer confidence is in a steady slippage. The UK service sector already is tenuous according to the queue ranking readings while France's service sector is still quite strong on any assessment. We can easily see the weak spots in Europe. And Germany is steering Europe and the global economy on path to austerity.

Still the good news is for now markets are recovering after several weeks of a disastrous sell off. If the plan is going to be successful the service sectors must continue to grow. It is early for these sectors to be losing steam. For the UK, Spain and Italy the service sectors already are on less-than-strong footing despite being above the reading of '50.'

Markit Services Indices for EU/Euro-Area   Jun-10 May-10 Apr-10 3Mo 6Mo 12Mo Percentile Euro-Area 55.51 56.17 55.60 55.76 54.28 52.62 73.0% Germany 54.76 54.82 55.22 54.93 53.96 52.71 68.4% France 60.78 61.45 59.17 60.47 57.68 55.94 81.2% Italy 51.52 53.71 54.47 53.23 52.78 51.00 54.7% Spain 51.75 52.26 50.93 51.65 50.36 47.80 72.1% Ireland 55.36 52.43 51.02 52.94 50.27 48.22 64.1% EU only UK (CIPs) 54.40 55.39 55.32 55.04 55.74 55.62 70.0% EU Commission Indices for EU and Euro-Area EU Index Jun-10 May-10 Apr-10 3Mo 6Mo 12Mo Percentile EU Services 4 3 4 -16.67 -16.67 -17.92 45.9% Euro-Area Jun-10 May-10 Apr-10 3Mo 6Mo 12Mo Percentile Services 4 4 5 4.33 2.33 -3.75 50.0% Cons Confidence -17 -18 -15 -16.67 -16.67 -8.47 45.9% Consumer Confidence By Country Germany-Ccon -10 -9 -7 -8.67 -12.33 -16.08 53.5% France-Ccon -22 -21 -20 -21.00 -19.17 -21.33 37.5% Ital-Ccon -22 -25 -21 -22.67 -21.50 -19.00 28.6% UK-Ccon -11 -10 -6 -9.00 -6.50 -8.92 63.2% percentile is over range since May 2000