Euro Area –Composite PMI plummets to 2-year low

The flash estimates for the Services PMI, Manufacturing PMI and Composite PMI for the euro area plummeted to a two -year low in September. The services PMI dropped from 58.0 in August to 54.0 in September. This is the weakest reading since August 2005 and represents the biggest one-month fall since the survey began in 1998. The services PMI estimate came much weaker than the consensus and Citigroup expectations (Consensus:

57.7; Citi: 57.0). The manufacturing PMI dropped from 54.3 in August to 53.2 in September. The drop in the manufacturing PMI was more in line with expectations, even if it was steeper than the consensus (53.9) and Citi’s forecast (53.8). Combining manufacturing and services PMIs, the composite PMI declined from 57.4 in August to

54.5 in September. This is the lowest reading since September 2005.

The manufacturing and services PMIs remain in expansion territory (an index greater than 50 indicates an expansion; An index lower than 50 indicates a contraction). Today’s flash estimates, however, suggest that the growth momentum in the euro area has weakened in September – particularly for services. Most likely, the effects of the last year’s hikes in interest rate, US slowdown, rise in oil prices, and the global credit crunch have started to take their toll. If confirmed, the September PMI data will probably indicate a further de -acceleration of growth in the euro area in the second half of the year. Quarter-on-quarter, manufacturing PMI edged down to 54.1 in the 3Q 2007 from 55.3 in the 2Q and services PMI edged down to 56.8 in 3Q from 57.5 in 2Q.

According to the split, the purchasing managers assessment of new orders decreased substantially both in services (-4.8 points to 53.7) and manufacturing (-2.4 to 52.4). In services, outstanding business (-1.3 to 51.4) and prices charged (-0.4 to 53.2) also plummeted. In manufacturing, input prices (-2.7 to 59.6), backlogs (-2.4 to 50.3), and quantity of purchases (-1.4 to 52.9) reached 2-year lows in September. On a positive note, purchasing managers assessment of employment remained relatively stable in manufacturing (+0.1) and only slightly declined in services (-0.5).