Key PointsPrevailing Amusement and Misguided Hope
- Flash Eurozone PMI Composite Output Index(1) at 46.6 (46.5 in July). Seventh straight contraction.
- lash Eurozone Services PMI Activity Index(2) at 47.5 (47.9 in July). Two-month low.
- Flash Eurozone Manufacturing PMI(3) at 45.3 (44.0 in July). Four-month high.
- Flash Eurozone Manufacturing PMI Output Index(4) at 44.6 (43.4 in July). Two-month high.
The Markit Flash Eurozone PMI® Composite Output Index – based on around 85% of usual monthly replies – was broadly unchanged at 46.6 in August, from a final reading of 46.5 in July. The index has now signalled a contraction of the Eurozone private sector for seven successive months.
The decline in total activity was widespread across the currency union. Flash readings for France and Germany pointed to contractions, with the rate of decline easing in France but gathering pace in Germany. There was also a further marked decline in output outside of the big-two economies.
The latest decline in overall output mainly reflected a further marked drop in new orders. Incoming new business fell for the thirteenth consecutive month, although the rate of contraction was less sharp than July (which was the steepest for over three years). Rates of decline slowed at both manufacturers and service providers.
The export performance of manufacturers also remained in the doldrums during August. New export orders (including intra-Eurozone trade) declined for the fourteenth month running, with the rate of reduction the sharpest since last November. This reflected not only the ongoing weaknesses of the Eurozone market, but also a softer rate of global economic expansion.
The ongoing downturn in the Eurozone economy filtered through to the labour market. Staffing levels declined for the eighth consecutive month, with payroll numbers cut at both manufacturers and service providers.
As is typical, comments from economists provide a source of entertainment.
Commenting on the flash PMI data, Rob Dobson, Senior Economist at Markit said: “The August Markit Eurozone Flash PMI reinforces the prevailing view of the economy dropping back into recession during the third quarter of 2012. ...Notice the silliness of the "prevailing view" the eurozone will "drop back into recession".
The real interest inevitably comes from the national breakdown. Hopes that German economic strength will aid recovery in the broader currency union were dealt a blow by its rate of economic contraction accelerating, and further signs that its export engine has slammed into reverse gear. France may be edging closer to stabilisation, while conditions outside of the big-two remain weak overall."
The eurozone is without a doubt in a full blown recession. As called in this corner, it was foolish to believe Germany would not join the party. Moreover, talk that "France may be edging closer to stabilisation" is also nonsense as Hollande's policies will soon start to take a big toll on the French economy.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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