Sharpest Drop in German Services Activity Since July 2009
August data pointed to a renewed contraction in German service sector business activity, following a slight expansion during the previous month.
This was highlighted by a fall in the final seasonally adjusted Markit Germany Services Business Activity Index from 50.3 in July to 48.3, its lowest since July 2009. Although the index was well below its long-run average (53.0), the latest reading indicated only a moderate rate of decline. Lower levels of business activity were broad-based across the six areas of the service economy monitored by the survey in August.
Moreover, this was the first time reductions have been recorded in all six subsectors since April 2009. The final seasonally adjusted Markit Germany Composite Output Index – which measures the combined output of the manufacturing and service sectors – fell again in August, to 47.0 from 47.5 in July. This was the lowest reading since June 2009.
Tim Moore, senior economist at Markit and author of the report said: “German service providers rejoined the
manufacturing sector inside contraction territory during August. The stabilisation of services output
recorded in July now looks like only a brief respite, as the latest performance was the weakest in just
over three years.
“New business volumes across the service sector also fell at the sharpest pace since the summer of 2009, thereby extending the current period of decline to five months. Employment was the only relatively bright area of the survey in August, as job creation at services companies ensured a modest overall expansion of private sector staffing levels.”
Service providers widely linked the downturn in business activity to weaker spending by businesses and consumers. This contributed to a drop in new business intakes for the fifth consecutive month during August. Latest data pointed to a steep fall in volumes of new work, and the rate of contraction accelerated to the fastest since June 2009.
Reduced intakes of new business were recorded in all six broad areas of the service economy. Post & Telecommunications and Financial Intermediation companies reported the fastest declines in incoming new work.
The composite index measuring levels of new business across the German private sector overall posted the sharpest drop since May 2009.
Work-in-hand (but not yet completed) in the service sector fell for the sixth month running during August, albeit at a slightly slower pace than in July. The solid drop in backlogs of work was generally linked to firms having sufficient spare capacity to meet new business requirements. The composite index measuring levels of outstanding business across the German private sector overall indicated a decline for the fourteenth successive month.
Service providers indicated a moderate degree of positive sentiment regarding the outlook for business activity over the next 12 months. This was the first positive reading since May. Hotels & Restaurants are the most upbeat about their prospects for the year ahead, while the Financial Intermediation and Transport & Storage sectors remain downbeat about the business outlook.
Job creation in the service sector was maintained for the fourth successive month in August. Although the latest increase in staffing levels was only moderate, it was the most marked since May. Companies that recruited additional employees generally cited long-term expansion plans at their units. The composite index measuring employment across the German private sector overall was also the highest for three months.
Meanwhile, latest data suggested that operating margins remained under pressure in the German service sector during August. Input costs increased at a solid pace, while output charges were reduced fractionally for the second month running. That said, the latest rise in average cost burdens was the slowest since September 2010. Lower costs in the Financial Intermediation sector again contrasted with sharp rises in input prices at Hotels & Restaurants.
The composite index measuring input prices across the German private sector overall signalled a moderate pace of cost inflation, while average output charges again decreased slightly.