The Eurozone service sector expanded in November at fastest pace in almost two years with the  Markit Eurozone Services Business Activity Index rising to 53.0 from 52.6 in October - - its highest level since December 2007. Activity has now risen for three successive months. However, the index came in below the earlier flash estimate (53.2) for the first time since January.

The headline index is based on a single question asking the panel of 2,000 service providers to report on their actual business activity levels (or output) at mid-month compared to the previous month.

New business rose for the third month in a row in November, although the rate of increase was only moderate and weaker than in the previous month. The index tracking new work was in line with the earlier flash estimate.

The latest increases in activity and new business masked the uneven performances of the national service economies. Gains in both variables were predominantly led by French service providers, where rates of increase in new work and activity were the strongest for two and three years respectively. Germany was the only other country that reported a rise in activity, despite new business falling for the first time in four months.

The remaining countries covered by the survey – Italy, Spain and Ireland – saw concurrent contractions in activity and new work in November. The performance of Spain was especially weak.

Confidence

Optimism regarding levels of business activity in twelve months’ time remained at a relatively high level in November, with all of the national surveys signalling that service providers expected to be busier this time next year. However, the degree of positivity moderated for the second month running and was less marked than signalled by the earlier flash estimate. Confidence slipped in Germany, France and Ireland, but improved in Italy and Spain. The most optimistic nation was Italy and Germany the least. Confidence was linked to hopes that economic conditions would continue to recover over the coming year.

Capacity and employment

Employment in the Eurozone declined for the seventeenth successive month in November. Moreover, the rate of decline was steeper than the earlier flash estimate and also sharper than one month earlier. Job losses were recorded in all of the national service sectors for which data are available, with Ireland and Spain recording the quickest rates of reduction. The slowest pace of job losses was in Germany, where employment fell following a slight increase in October.

The rate of contraction in outstanding business eased for the fifth month running in November to its weakest since August last year. The reduction was also less marked than the flash estimate. With the notable exception of France – which saw backlogs rise to the greatest extent since March 2008 – volumes of work-in-hand declined in all of the nations covered.

Prices

Average costs stabilised in November, ending a nine-month sequence of declining input prices. Costs rose in Italy, Germany and Spain, with by far the steepest increase in Italy. Italian service providers attributed this to higher energy and raw material prices. Costs dropped sharply in Ireland. Meanwhile, France reported a moderate decrease in input prices that was the slowest in five months.

November data pointed to a further substantial decrease in average selling prices at Eurozone service providers, as companies reported that price competition remained fierce. Charges have now fallen for thirteen straight months, with the latest reduction greater than the earlier flash estimate.