The current Markit Purchasing Manager’s Index (PMI) has recorded the highest level of business activity within the Eurozone for more than 2 years. The Markit surveys covered a range of sectors including manufacturing and the August figure of 51.3, up from 50.3 in July, was the best value seen for 26 months. The PMI scale reads any value below 50 as contraction in the sector concerned and values above 50 as growth.
The composite PMI reading for August came in at 51.7 rising from a July figure of 50.5. The service sector PMI is particularly important since service activities account for the majority of economic activity within the 17 member Eurozone bloc. The August PMI reading was 51, up from 49.8 (contraction) in July; this is the strongest performance seen in the sector for two years.
Naturally, with such a large bloc, there is considerable variability of performance within the Eurozone. Germany’s composite figure shows growth, but a similar number for the French economy indicates that contraction has intensified, dropping from a July figure of 49.1 to 47.9 for this month.
Markit’s Chief Economist, Chris Williamson summed up the data: "So far, the third quarter is shaping up to be the best since the spring of 2011. The upturn is being led by Germany. A big question mark still hangs over France's ability to return to sustained growth."
US and European markets were higher by about 1% on the news, but the reaction in Asian markets sent them lower. The reason for this is that stimulus measures by (notably) the US Federal Reserve must be withdraw eventually and Asian investors see the data as making this move come sooner rather than later. Western investors are not expecting any change or announcement to be made before September. For its part, the Federal Reserve has always maintained that the trigger for “tapering” will be improved employment statistics.