Job Losses in 2 Year High Due to Ongoing Downturn
The Markit Eurozone PMI® Composite Output Index was unchanged at 46.4 in July, according to the preliminary ‘flash’ reading which is based on around 85% of usual monthly replies.
The index therefore signalled that the private sector economy contracted for the tenth time in the past 11 months, with the rate of decline unchanged on June.
The July reading was in line with the average seen in the second quarter, for which the PMI signalled the steepest quarterly downturn for three years.
Manufacturers reported a sharper deterioration in business conditions than services providers in July. Manufacturing output fell at the steepest rate since May 2009, while the rate of decline in the services economy eased slightly for the second month running to the weakest for four months.
Output fell in response to an accelerated rate of loss of new business, which suffered the jointsecond fastest rate of decline in over three years.
Service sector new business fell at the fastest rate since May, while manufacturers reported the second-steepest fall since last November.
The fall in output was widespread across the single currency area, with both the core and periphery contracting. Output fell in Germany for the third month running, dropping at the fastest rate since June 2009. Services slipped only slightly further into contraction, but manufacturing saw the largest
decline for just over three years.
French output fell for the fifth successive month, though the rate of decline eased slightly for the second month running to reach the weakest for four
months. The improvement was limited to the service sector, however, where activity rose marginally for the first time since March. French manufacturers, in contrast, saw the largest drop in production since April 2009.
Elsewhere in the euro area, outside of France and Germany, output fell for the fourteenth successive month. The pace of contraction eased marginally on June, but was nonetheless the fifth-steepest seen over the past three years, with output falling sharply again across both manufacturing and services.
Employment fell for the seventh straight month across the Eurozone, dropping at the fastest rate since January 2010 as increasing numbers of firms cut capacity. Job losses gathered pace in both manufacturing and services, with the former posting by far the steeper rate of decline.
While employment fell only marginally in Germany, French payroll numbers were cut at the fastest rate since December 2009. Elsewhere across the region
employment was cut at the sharpest pace since November 2009.
Backlogs of orders fell across the region to the greatest extent since July 2009, with both manufacturing and services seeing the steepest falls since mid-2009. Falling backlogs are typically a sign of excess capacity developing.
In a further indication of surplus capacity, manufacturers reported that suppliers’ delivery times showed the greatest improvement since June 2009, with vendors increasingly able to meet demand due to lower than expected sales.
Manufacturers also reported that the average prices paid for inputs fell for the second month in a row, dropping at the fastest rate since August 2009. Service providers’ costs, on the other hand, rose slightly faster than in June, linked in part to higher food, oil and transport costs.
Measured across both sectors, input costs nevertheless rose at the slowest rate since November 2009. Prices charged by companies for their goods and
services meanwhile showed the largest fall since February 2010. Faster rates of decline were seen in both manufacturing and services, as companies
sought to boost sales though discounting.
Finally, service providers reported the weakest level of optimism about the 12-month outlook since March 2009. Confidence fell in Germany, France and across the rest of the region as a whole.
Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said: “The flash PMI for July suggests the euro area downturn showed no signs of letting up at the start of the third quarter and is consistent with GDP falling at a quarterly rate of around 0.6%, which is similar to the rate of decline we expect to see for the second quarter.
“The downturn is being led by an increasingly severe slump in manufacturing, where output is falling at a quarterly rate of around 1%.
“Germany is now contracting at the steepest rate for three years, while the rate of decline in the periphery is also among the highest seen since
mid-2009. The only sign of improvement was limited to the French services sector, which is likely to be due to domestic business settling down again
after the general elections and could therefore prove temporary.
“Companies across the region are cutting staff numbers at the fastest rate for two-and-a-half years as the outlook darkens. Service providers are now
the gloomiest since March 2009, while manufacturers are slashing their inventories of raw materials in the expectation of ongoing weak sales in coming months.
“Companies also cut prices to the greatest extent since early-2010 to help boost ailing sales, which should help alleviate inflationary pressures but may hit profits. Falling input costs should help protect profit margins in manufacturing, but costs continue to rise in services.”