Service Sector Drifts Towards Stagnation in June

July 06, 2012 /

At 50.6 in June, the JPMorgan Global Services Business Activity Index – a composite index produced by JPMorgan and Markit in association with ISM and IFPSM – signalled the weakest expansion of output during
the current near three-year period of growth.

The Eurozone remained the weak spot in the global service economy during June. Activity in the currency union fell for the fifth month running, despite the rate of contraction easing slightly since May. Output in Germany stagnated – ending an eight-month period of growth – while downturns in France, Italy, Spain and Ireland all continued.

Japan and Hong Kong also reported lower levels of activity in June. Output growth generally slowed elsewhere in the global service sector. The rate of expansion in the US eased sharply to a two-and-a-half year low, and
decelerations were also signalled in the UK, China, Russia and India. Brazil bucked the softening trend, as activity rose after May’s modest contraction.

Growth of global services new orders also ebbed in June, leading some firms to support activity levels through the depletion of outstanding contracts. Backlogs of work fell at the quickest pace during the year-to-date, with reductions seen in all of the nations covered by the survey.

Price pressures continued to slow in June. The rate of input cost inflation was the weakest for three years, having eased in each month since February’s recent high. US non-manufacturers saw a modest decline in input
prices for the second month running. Costs declined in Spain and Japan, both for the first time since January.

Rates of inflation eased in the Eurozone, China, Brazil and Hong Kong, but accelerated in the UK and Russia.

June data signalled a sixth successive month-on-month increase in staffing levels. The rate of jobs growth was only moderate, but nonetheless an improvement on the previous month. Employment rose in the US, Germany,
the UK, China, Russia, India and Brazil.

David Hensley, Director of Global Economics Coordination at JPMorgan, said: “Growth of the global service business activity and new orders were maintained in June. However, the sector skirted closer to the stagnation mark as levels of new business rose at a slower pace.”

 

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