- Composite PMI 48.9 vs 49.2 prelim
The headline reading is a 17-month low while the composite reading is a 18-month low as the euro area economy moves further into contraction territory in August. Falling demand was the main cause again with the only positive being that inflation pressures have softened but remain stubbornly elevated. S&P Global notes that:
“A second month of deteriorating business conditions in the euro area adds to the likelihood of GDP contracting in the third quarter. August saw output fall at an increased rate, with companies and households scaling back their expenditures amid the recent surge in inflation and growing uncertainty about the economic outlook.
“The deterioration is also becoming more broad-based, with services now joining manufacturing in reporting falling output. Having led the growth spurt earlier in the year, consumer-facing services such as travel, tourism and recreation are now reporting falling activity levels as the rising cost of living pushes households to cut back on nonessential spending. Financial services (notably including real estate) are meanwhile feeling the squeeze from higher interest rates, and industrial services are seeing their manufacturing customers reduce their spending amid the downturn in demand for goods.
“Although the overall rate of decline remains only modest, commensurate with GDP falling at a quarterly rate of just 0.1%, the latest data point to the economy undergoing its weakest spell for nine years, excluding the downturns seen during the height of the pandemic.
“Looking ahead, an increased rate of loss of orders in August suggest that the downturn in business activity could gather pace in September, and firms are already cutting back on their hiring in the face of weaker than expected sales, surging costs and concerns about future growth prospects.
“Firms’ costs and selling prices continue to rise at rates that had not been witnessed prior to the pandemic, underscoring the persistence of elevated inflationary pressures, but there is at least some good news in terms of the rates of increase having slowed further in August, suggesting the inflation peak has passed.”