Three bits of economic data saw the light of day late yesterday and this morning. The UK saw the release of the latest report on services from the Chartered Institute of Purchasing and Supply and Markit; across the pond, the equivalent report, but relating to the US, was released. In Germany, news is out on the latest unemployment data.
You won’t be surpised to learn that the UK services industry is still stuck in the mire.
The CIPS Markit report was not pretty. It was full of words and phrases like “extremely adverse economic conditions”, “retrenchment of non-essential spending” and “the downturn in activity during the second half of the year has been particularly severe”.
The real blow was with employment, with the survey finding that employment was “down at record pace”.
Roy Ayliffe, Director of Professional Practice at the Chartered Institute of Purchasing and Supply (CIPS), said: “The festive period did little to bolster the service sector in December, with 2008 witnessing its poorest annual performance since data was first collected over twelve years ago.
“Purchasing managers voiced deep concerns for the service sector as businesses and consumers slashed their spending causing profits to tumble further and faster. Margins were squeezed by increasing input prices – largely fuelled by the weaker sterling – and lower prices charged as firms battle for business in an increasingly fierce market.”
As for the US, the non-manufacturing index from the Institute of Supply Management did see a slight improvement. The index rose from 37.3 in November to 40.6 in December. But bearing in mind anything below 50 is supposed to suggest contraction, this is still pretty abysmal. According to Capital Economics, the current reading for this index is compatible with a 2 per cent annual contraction in US GDP.
As for Germany, unemployment saw its first monthly rise in 33 months in December. German unemployment now stands at 7.6 per cent. Actually, it is quite interesting that German unemployment has only just started to rise.
This seems to be quite an important development. Up until recently, Germany seemed quite divorced from the global crisis. Its banks were in trouble, but 33 months of improving unemployment is pretty impressive.
But the truth is, the world’s main developed economies now seem to be contracting in unison.
The trouble is, the big stimulii are only coming from some of the world’s developed economies. A sustainable Eurozone recovery is dependent on the German consumer. Right now in Germany, we are seeing a classic example of what happens when consumers save too much. People save in order to protect themselves from a rainy day. But in saving, aggregate demand falls, unemployment rises, and as a result the rainy day is more likely to happen.
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