Source: Markit Economics

Eurozone flash August PMI (Purchasing Manager's Index) data, pointed to a broad stabilisation of the private sector economy with a sharp easing in the service sector downturn and the first gain in manufacturing for 15 months.

The Markit Flash Eurozone Composite Output Index, based on around 85% of normal monthly survey replies, rose to 50.0, up from a final reading of 47.0 in July. This ended a fourteen-month sequence below the no-change mark of 50.0. The headline figure has improved in each of the past six months, after hitting a record low in February. The jump in its level in August, is the greatest in the series history.

Today's data comes a week after the surprise report that Germany and France had returned to growth in the second quarter (see link in Related below).

Markit says the latest PMI reading was well above market expectations (Reuters poll: 48.1).

The move to a stabilisation level in August was the result of a return to growth of manufacturing output and a noticeable slowing in the rate of contraction in service sector business activity. Manufacturing production rose, albeit only moderately, for the first time since May 2008. After rising to the greatest extent in its history, the Services Activity Index posted its highest reading in the current fifteen-month sequence of contraction and was indicative of only a slight decline in activity.

The rate of contraction in new business continued to ease and was the weakest for fifteen months in August. Manufacturing new orders rose slightly for the first time since March 2008, while the decline in service sector new business was only modest and the weakest for twelve months. The trend in new export orders also showed signs of potential recovery, with the level of new export business to manufacturers holding broadly steady in August.

Looking ahead, Markit said service sector confidence improved further to hit a 28-month high and manufacturers continued to deplete inventories at an historically rapid rate. Subsequently, the cyclically-sensitive new orders-to-inventories ratio rose to its highest for over two-and-a-half years.

The improving outlook led to a further easing in the rate of job losses in August. After slowing to the greatest extent in the survey history, the rate of decline in employment was the weakest recorded since last October. Rates of decline were the lowest for ten and nine months respectively for manufacturing and services. The pace of job cutting remained much more severe in manufacturing.

The rate of decline in input costs slowed to its weakest for nine months in August. Deflationary pressures eased in both the manufacturing and service sectors, with the slower reduction in costs at service providers.

Output prices fell at the least marked pace in 2009-to-date, but still to a greater extent than input prices. The reduction in charges remained rapid by historical standards, as companies continued to support sales efforts through price discounting.

Commenting on the flash PMI data, Rob Dobson, Senior Economist at Markit said: “PMI data are signalling that the unprecedented downturn has been followed by an historically rapid rebound that positions the Eurozone to post growth of GDP in the third quarter. Rising job losses and the continued need for widespread and deep price discounting remain concerns looking ahead as a sustained recovery in demand is necessary if the emerging rebound is to gain traction. The outlook is becoming more positive, however, as the labour market retrenchment eased further in August, the inventory cycle remains supportive and confidence at service providers hit a 28-month high.”

The Eurozone PMI (Purchasing Managers' Index) is produced by Markit Economics and is based on original survey data collected from a representative panel of around 4500 companies based in the region's manufacturing and service sectors.