Euro area "flash" PMIs: August survey points to a moderation in activity; still consistent with 0.7% Q3 GDP growth
 
The August "flash" PMI report for the euro area suggested that manufacturing and services activity moderated slightly in the month, but implied that economic growth will put in a strong performance for Q3 as a whole. The euro area "flash" composite PMI fell to 56.1 in August, from 56.7 in July (cf. BarCap: 56.2, consensus: 56.7).

Nonetheless, our calculations suggest that this level is consistent with euro area real GDP growth of 0.7% q/q, which would mark significant upside risks to our 0.2% q/q forecast for the quarter. September's data will reveal whether or not activity tailed off at the end of Q3, with close attention likely to be paid to the German manufacturing sector activity (the driver of the euro area economy in recent months), which fell to a low for 2010, according to the August survey.
 
The decline in the composite PMI reflects a moderation in both manufacturing and services activity. The manufacturing output series (which is the balance used to calculate the official composite PMI) fell to 57.2, from 58.7, while the services PMI declined to 55.6, from 55.8. In the manufacturing survey, the most notable decline was recorded by the new orders index, which declined to 55.0, from 57.7. Elsewhere, the employment index edged down to 51.0, from 51.1 and the new orders index fell to 54.4m from 55.4. On the prices front, the input price index fell 2.1 points in August to 61.8, implying a cumulative three-month decline of 11.9 points. Output prices recorded a less marked decline; the index fell to 54.4 from 55.4.

In the euro area services PMI, the headline index fell to 55.6, from 55.8. Unlike the manufacturing PMI, the services index is not a composite, and so the sub-indices matter separately. The new business index rose 0.3 points to 53.4, while the employment index fell 0.5 points to 51.1.

At the individual country level, there was a consolidation in German manufacturing activity and an improvement in service-sector activity. In the German manufacturing survey, the headline index fell to 58.2 in August, from 61.2 in July, the lowest outturn of the year. The detail of the survey reveals a broad-based consolidation from July's elevated levels. The largest contributor to the moderation in German manufacturing activity came from the new orders index, which declined 5.9 points to 57.4. Nonetheless, this sub-index remains well above the long-run average of 52.8. Elsewhere, there were falls in the output (60.9 from 63.6) and employment sub-indices (53.8 from 54.5). On the external front, the export orders index fell to 54.9 from 56.1, the lowest reading since January this year. Manufacturing input price inflation eased (with the index edging falling to 61.4 from 64.4), while a less marked decline was seen in the output price index (51.7, from 53.0).

In the services survey, the headline index rose 2.0 points in August to 58.5, a three-year high. In addition, the business expectations index picked up to 66.5 from 63.0, the third consecutive monthly increase and the highest outturn since December 2003. Elsewhere, the employment index edged down to 52.0 from 52.2. In terms of prices, the survey indicated that service providers' margins were squeezed in the month, with the input price index rising to 52.6 from 51.4 and the prices charged index falling to 48.5 from 49.8.

In France, there were opposing moves in the manufacturing and services surveys. The manufacturing PMI rose 0.9 points to 54.7 (cf. BarCap & consensus: 53.5), while the services PMI recorded a larger-than-expected decline of 1.2 points to 59.9 (cf. BarCap & consensus: 60.5). Within the services survey, the most notable decline was in the employment sub-index. It fell to 53.2 in August from 54.1 in July, a level broadly consistent with its historical average. On a more positive note, the new business index rose 2.3 points to 60.2. On the prices front, there were increases of four points apiece in the input prices (to 56.6) and prices charged indices (51.9).

In the French manufacturing PMI, the increase in the "headline" index reflected stronger new order and employment trends. Indeed, the new orders index rose 2.8 points in August to 57.3, 0.7 standard deviations above the historical average for the series. Meanwhile, the employment index moved closer to the no-change mark of 50, rising to 48 from 46.0. In terms of prices, the input price index rose 1.7 points to 67.0, while the output price index fell to 52.5 from 53.9.


source: BarCap