Eurozone Services and Composite PMI Back in Contraction; Italy, Spain, France at New Lows

Eurozone Services and Composite PMI Back in Contraction; Italy, Spain, France at New Lows

Markit Eurozone Services and Composite PMIs show renewed contraction due to drop in services activity, making it extremely difficult to deny that Europe is in a recession. Let's take a look at some numbers.

Markit Eurozone Composite PMI®

The Markit Eurozone PMI® Composite Output Index fell from 50.4 in January to 49.3 in February, dropping below the earlier flash estimate of 49.7. The final reading confirmed that business activity contracted in February, having briefly returned to growth in January following four months of decline at the end of last year.



Key points:

• Final data confirm slide back into contraction, as drop in services activity offsets marginal rise in manufacturing output
• Strong downturns still evident in Italy and Spain
• Employment and prices charged fall as firms seek to cut costs and win new sales

Markit Eurozone Services PMI®

Service sector weakness poses new recession risk

Key points:

• Service sector activity contracts for fifth time in six months
• Ongoing fall in new business leads to job losses
• Growth in Germany contrasts with steeper declines in Italy and Spain
• Business confidence hits seven-month high

Of the four largest euro countries, only Germany showed expansion in February, and the rate of growth slowed from January’s seven-month high. The French service sector stagnated, ending a two-month period of mild expansion. Both Spain and Italy registered steep contractions, with the rates of decline gathering momentum in both cases.

Nations ranked by business activity (February)

• Ireland 53.3 12-month high
• Germany 52.8 2-month low
• France 50.0 3-month low
• Italy 44.1 4-month low
• Spain 41.9 3-month low

Spanish service providers reported a further particularly steep drop in payroll numbers, and employment also fell sharply in Italy’s service sector. French headcounts rose only slightly, while services employment growth in Germany slowed to the weakest since June 2010.

Companies frequently sought to boost sales by cutting prices, and average prices charged for services fell for the fifth time in the past six months as a result. Price trends varied markedly by country, however, ranging from ongoing upward pressure in Germany to steep falls in Spain and, to a lesser extent, Italy. France registered a slight fall in prices charged for services, reflecting the stagnation of new business flows in February.

In contrast to the trend for charges levied by service providers, input prices in the sector rose for the twenty-seventh straight month, pushed up in many instances by higher fuel and energy prices.

Profit Squeeze

Note that prices received fell for the fifth month in six, but prices paid rose for the twenty-seventh straight month.

Let's take a look at the second biggest economy, France, to see what is coming up.

3 Charts On The US Consumption Crash Dead-Ahead

Submitted by Tyler Durden on 03/05/2012 14:42 -0500

Average US gas prices are over 13% higher since late December 2011, back at June 2011 levels, and do not look set to drop any time soon. The anecdotal impact of this rise in a significant segment of the real US consumer's spending habits is unmistakable, as we discussed earlier, but it is more important to note where we have come from when considering the macro impact. Q4 macro data was 'juiced' by the significant drop in the price of energy as the 4-5pt drop in Energy-and-Utilities spend enabled 'visible' consumption to rise during that time (obviously helped by government handouts also). Just as occurred in the latter part of 2008, as the consumer was forced to spend more on Energy, so the visible consumption dropped notably and given the significance of the current data 'drop' in energy spending, when the current gas prices filter into this data, we would expect, as Credit Suisse points out, consumption on more discretionary spending will drop significantly.
Gas prices are up very significantly (both absolutely and on average)...


but the 'forced' rise in Energy spending has not filtered into the data yet...



...and just as in late 2008, as the spend of Energy and Utilities rises, so discretionary spending will drop significantly and given the huge divergence in the last quarter or two, the reaction could be very significant.



Perhaps this is just the 'crash' that Bernanke needs to run-the-presses again as conditionality will increasingly force investors to reject the 'optimal' buy-and-keep-buying trend as they recognize that QE3 can't start until things get worse, and buying in anticipation of QE3 means it will never happen?
Charts: Bloomberg