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Tuesday, September 23, 2014 11:53 PM

Eurozone Composite Signals Slowdown; French Private Sector Output Decline 5th Month; German Manufacturing Approaches Stagnation

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French Private Sector Output Decline 5th Month

The demise in France continues. Markit reports French Private Sector Output Falls Further in September.

Key points:

  • Flash France Composite Output Index(1) falls to 49.1 (49.5 in August), 3-month low
  • Flash France Services Activity Index(2) drops to 49.4 (50.3 in August), 3-month low
  • Flash France Manufacturing Output Index(3) rises to 47.9 (45.8 in August), 4-month high
  • Flash France Manufacturing PMI(4) climbs to 48.8 (46.9 in August), 4-month high

The latest flash PMI data indicated a fifth consecutive monthly decline in French private sector output during September.

Underlying reduced activity was a drop in the level of new business received by French private sector firms during the latest survey period. Although slight, the reduction in new orders reversed a rise in August. Whereas manufacturers signalled a solid decline in new work, service providers registered a fractional fall. Panellists commented on subdued demand conditions both domestically and in certain export markets. Manufacturers recorded a drop in foreign orders for the fifth month running.

Employment in the French private sector continued to fall in September, extending the current period of job shedding to 11 months. Moreover, the rate of contraction quickened to the sharpest since February. Similar rates of decline were indicated in the services and manufacturing sectors.

Backlogs of work in the French private sector decreased for a fifth successive month in September, although the rate of contraction eased to a fractional pace. Slight growth of outstanding business at service providers was offset by a marked reduction of backlogs at manufacturers.


Jack Kennedy, Senior Economist at Markit, which compiles the Flash France PMI ® survey, said: “French economic performance weakened in September, as a return to contraction of the service sector outweighed an easing rate of decline in manufacturing. Anaemic demand continues to hold back the private sector, with further price cutting insufficient to prevent new orders from falling. Firms responded to the continued weakness by lowering employment at the sharpest rate since February.”
Eurozone Composite Signals Slowdown

Markit reports Flash Eurozone PMI Signals Further Waning of Growth.
Key points:

  • Flash Eurozone PMI Composite Output Index(1) at 52.3 (52.5 in August). 9-month low.
  • Flash Eurozone Services PMI Activity Index(2) at 52.8 (53.1 in August). 3-month low.
  • Flash Eurozone Manufacturing PMI(3) at 50.5 (50.7 in August). 14-month low.
  • Flash Eurozone Manufacturing PMI Output Index(4) at 51.0 (51.0 in August). Unchanged.

Euro area business activity grew in September at the lowest rate seen so far this year, according to the preliminary ‘flash’ PMI survey data.

At 52.3, down from 52.5 in August, the Markit Eurozone PMI™ Composite Output Index fell for a second month running, dropping to its lowest since December of last year. At 52.9, the average quarterly reading for the three months to September was also the lowest so far this year.

Inflows of new orders rose only modestly, with the rate of increase waning for the third successive month to register the smallest monthly improvement since August of last year.

Manufacturing fared worse than the service sector with the headline PMI falling to 50.5, its lowest since July of last year and edging closer to the 50.0 mark that signals stagnation. Although factory output grew slightly, new orders fell for the first time since June of last year. Employment was unchanged and prices charged by factories fell for the first time since April.

By country, faster growth in Germany, led by the service sector, was offset by an ongoing downturn in France and slowing of growth elsewhere in the region.


Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said:

“The survey paints a picture of ongoing malaise in the eurozone economy. With growth of output and demand slowing, employment once again failed to show any meaningful increase. Such torpor meant prices continued to fall as firms fought for customers, which will inevitably heighten concerns that the region is facing deflation. “For a central bank hoping that the economic data flow will start to improve, the ECB will be disappointed by the ongoing weakness of the PMI. The survey data suggest GDP is on course to grow by 0.3% at best in the third quarter, buoyed by a 0.4% expansion in Germany but dragged down by stagnation in France and sluggish growth in the rest of the region."
German Manufacturing Approaches Stagnation

The Markit Germany Flash PMI shows Private sector growth maintained in September, but manufacturing edges closer to stagnation.
Key points:

  • Flash Germany Composite Output Index at 54.0 (53.7 in August), 2-month high.
  • Flash Germany Services Activity Index at 55.4 (54.9 in August), 2-month high.
  • Flash Germany Manufacturing PMI at 50.3 (51.4 in August), 15-month low.
  • Flash Germany Manufacturing Output Index at 51.1 (51.5 in August), 15-month low.

September data signalled a continuation of the ongoing expansion in German private sector output, as highlighted by the seasonally adjusted Markit Flash Germany Composite Output Index rising slightly from 53.7 in August to 54.0. The current period of growth now stretches to 17 months and surveyed companies generally linked this to increased order intakes. However, the gap between manufacturing and services widened further in September. Production growth in the goods-producing sector slowed to a 15-month low, while service sector output rose at a slightly faster pace compared to August.


Oliver Kolodseike, Economist at Markit and author of the Flash Germany PMI®, said: “September’s flash PMI results paint a mixed picture of the health of the German economy at the end of the third quarter. Total private sector output continued to rise at an above average rate and employment growth picked up again, attributed in both cases to a strong service sector. However, new order growth slowed for a fourth month running and was the weakest in one year, suggesting that activity growth might slow in the near-term. “The introduction of a national minimum wage in January 2015 meanwhile weighed on service sector sentiment, with business expectations the lowest in nearly two years. “Moreover, recently weak manufacturing data have become one of the most conspicuous features of the fragility of a broad-based recovery. Production growth slowed further and new orders contracted for the first time in well over a year amid reports of a weakening economic environment. It remains to be seen if Germany’s goods-producing sector is in the midst of a slowdown or whether recent poor data present just a temporary soft patch.”
Soft Spot or Something Else?

I have been calling for a downturn in Germany for some time but it has not happened yet. However, the reports pretty much speak for themselves.

The near stagnation of German manufacturing coupled with contraction in France and a slowdown in growth elsewhere tells the story.

Germany cannot forever disconnect from the rest of the eurozone, especially France and Italy (Italy report not out yet but it is highly unlikely to be any good.)

Mike "Mish" Shedlock

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