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Tuesday, September 23, 2008

Eurozone Flash PMI's For Manufacturing And Services Indicate Continuing Contraction

Europe's manufacturing and service industries contracted in September at the fastest pace in nearly seven years as continuing problems in credit-markets slowed lending and borrowing and companies scaled back production in response to slowing orders. The Royal Bank of Scotland Group composite purchasing managers index dropped to 47 - down from 48.2 in August - and the lowest since November 2001.

While these are only initial flash estimates, and we will need to wait to see the detailed confirmation on October 1st, this extended contraction in both manufacturing and services industries does suggest that it is now touch-and-go whether the eurozone economy will contract for a second consecutive quarter in Q3 2008, making for the first collective recession since the single currency was introduced.

The manufacturing index fell to 45.3 this month, down from 47.6 in August, while the services index fell to 48.2 from 48.5.

French Manufacturing Contracts Drastically, While Services Unexpectedly Expand

The French manufacturing PMI continued to indicate contraction in September, with the reading falling to 43.6, a much sharper rate of decline than the 45.8 registerd in August. This is the fastest pace of decline in manufacturing production since October 2001, with output being dragged down by very weak domestic demand, which prompted a huge decline in new orders, according to the statement by Markit Economics.

The service sector, on the other hand, showed unexpected strength, rising to 50.4 in September from 48.0 in August.

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