Service Sectors Are Weakening Across Europe

The service sector is eroding across Europe. France had resisted deterioration for some time but in recent months the French reading has dropped sharply. Spain and the UK have the weakest readings since this index was instituted on a broad basis in May of 2000. France and Italy are in the lower 10 percentile of their respective ranges. Germany, at 53.3, is still showing expansion and is above the midpoint of its range at a percentile standing of 56.9. For the whole of the Euro Area the service sector standing is in the bottom 17 percentile of its range.

All country indices were slipping from mid-2007 onward Germany alone saw its service sector then find a bottom and rebound from early 2008 through April. But over the past two months Germany’s service sector has been under pressure, despite is being the clear best performer in the e-Zone.

The companion readings for consumer confidence show that the performance of confidence across countries correlates well with the performance of the service sector. Consumers in Spain and the UK are the glummest and these countries have the weakest service sectors. The French and Italian consumers are also glum but not as shell-shocked as in the UK and Spain. Meanwhile, in Germany, consumer confidence, like the service sector reading itself, stands above its range midpoint in June.

The service sector is where the jobs are and therefore where much of consumer income is generated. The performance of this sector is important to the economy. The slippage in European services sector performance is a bad sign for the future, especially on a day that the ECB has chosen to hike its key lending rate by 25bp.