German Services PMI Shows Continuing Expansion In July

The euro zone's services sector slid further into contraction in July, hitting a five-year low, while inflationary price pressures remained near record levels. Final data in the monthly PMI survey of private sector companies showed that of the big four economies in the euro zone, only in Germany did services activity expand, and in this case slightly more quickly than in June. The RBS/Markit Eurozone Purchasing Managers Index for services companies, which range from banks to cafes, fell to 48.3 in July from 49.1, unrevised from the flash estimate and well below the 50.0 mark that separates growth from contraction.

Germany fared a little better and remained in growth territory at 53.1, ticking up from June's 52.1.

"The final PMI data confirm a dramatic spreading of weakness throughout the euro area, with service sectors in France, Italy and Spain all contracting at or near to survey record rates," said Jacques Cailloux, chief euro area economist at data sponsor RBS. With confidence plummeting amid weaker growth of new business in Germany, the euro zone's largest national economy is also looking in danger of sliding into contraction soon,"

German Manufacturing PMI Shows Slight But Continuing Expansion In July

The seasonally adjusted RBS/Markit Eurozone Manufacturing PMI (Purchasing Managers' Index) registered 47.4 in July, down from 49.2 in June and slightly below the flash estimate for July of 47.5. The final reading signalled the second consecutive monthly deterioration in manufacturing sector business conditions and the steepest rate of decline since June 2003.

German manufacturing activity by contrast, continued to show some resilience, registering a reading of 50.9 in July, down from 52.6 in June.

German Retail Sales Decline Again In June

Retail sales in Germany fell more than twice what economists expected in June as evidence builds that Europe's largest economy not only contracted in the second quarter, but may now be actually entering recession.

According to provisional results of the Federal Statistical Office (Destatis), turnover in retail trade in Germany in June 2008 was in nominal terms 1.2% and in real terms 3.9% smaller than that in the corresponding month of the previous year. The number of days open for sale was 25 in June 2008 and 26 in June 2007. When adjusted for calendar and seasonal variations, the June turnover was in nominal terms 1.4% and in real terms also 1.4% smaller than that of the preceding month.



Consumer confidence dropped to its lowest in more than five years and German unemployment fell at a weaker pace in July, reports showed this week. Business confidence fell the most since the 9/11 terror attacks last month, manufacturing orders unexpectedly declined for the sixth time in succession and industrial production had its biggest decrease in 9 years. Indeed if we look at the (seasonally adjusted) retail sales index, sales in June were below anything we have seen in a long time, certainly in years.





All this is certainly starting to complicate things significantly for the the European Central Bank following the increase in its benchmark interest rate last month to 4.25 percent amid the fastest inflation in 16 years. The ECB governing council meets again on Aug. 7 but there is a virtual unanimity among economists that they will leave interest rates unchanged.