Eurozone Contracts, Japan In Recession.,

                                                                                                                                                                                                       Eurozone drifts nearer to stagnation in July, as Germany and France slow further and Spain falls back into contraction
                                                              Data collected 12–26 July.
Key points:
.. Final Eurozone Composite Output Index at 22-month low of 51.1 in July (flash estimate: 50.8).

.. Growth led by France, as Germany slows sharply. Contractions seen in Italy and Spain.

.. Further job creation in Germany and France, while pace of losses eased               outside of the big-two.
                                              Output growth slips closer to stagnation

Having eased sharply in each of the previous three months, Eurozone private sector growth moved closer to stagnation at the start of Q3 2011.
The Final Eurozone PMI® Composite Output Index fell to 51.1 in July, down from 53.3 in June. Although above the earlier flash estimate of 50.8, the final reading was still the lowest since September 2009. Activity has risen throughout the past two years.

Output growth eased in both the manufacturing and service sectors in July. Manufacturing production scarcely rose over the month. Meanwhile, the rate of expansion in service sector business activity was the weakest since September 2009.
The slowdown was broad-based by nation. Rates of expansion were the least marked since October 2009 and August 2009 in Germany and France respectively, and well below those seen in the opening quarter of the year. Further contractions were seen in Italy and Spain. In the case of Spain, the rate of decline was the steepest for 19 months.
                                              Nations ranked by output (July)
                                              France 53.2 23-  month low
                                              Germany 52.5 21-month low
                                              Italy 49.1 2-        month high
                                              Spain 46.1 19-   month low



The principal factor underlying weaker output growth was a near stagnation of inflows of incoming new business. Levels of new work slowed on the back of weakening conditions in domestic markets and the first decline in new manufacturing export business (including intra-Eurozone trade) for two years.
The rate of expansion in new business eased sharply in Germany (weakest in two-year period of growth) and also moderated in France (23-month low). Italy reported a further reduction, while Spain saw new orders fall back into contraction with the steepest rate of decline since the end of 2009.


                 Job creation continues in big-two nations, rates of reduction ease in Italy and Spain


Job creation held up comparatively well in light of the slower expansions in output and new business. Employment rose for the fifteenth month running in July, with the rate of increase only slightly below the average for that period. Payroll numbers rose at both manufacturers and service providers.
The slowdown mainly reflected weaker job creation in Germany. However, Germany still reported the strongest increase in payroll numbers overall, followed at some distance by France (which saw a faster rate of jobs growth than in June). Although further losses were recorded in Italy and Spain, rates of decline eased in both nations.
                                             Output price indices by nation


July saw average input price inflation ease further from March’s 32-month high. Slower cost increases were reported in both the manufacturing and service sectors, with by far the sharper easing seen at manufacturers. Cost inflation slowed in all of the nations covered by the survey.

        
                              Japanese private sector activity falls at solid pace in July

Key points:

.. Composite data signals fifth successive monthly decline in business activity

..  Private sector new work falls only marginally

..   Service sector optimism remains solid

Summary:

              Japanese service providers reported lower business activity for the sixth consecutive month during July, as intakes of new work continued to fall amid weak domestic consumption. Companies further reduced their employee numbers in response. Looking ahead, service providers expressed a solid degree of optimism in the one-year business outlook. Meanwhile, output prices and input costs decreased at marked and marginal rates respectively.

The seasonally adjusted Business Activity Index posted 45.3 in July, down fractionally from 45.4 in June,

signalling a marked reduction in Japanese services output. However, the pace of reduction was much slower than the severe falls seen in March and April.

Meanwhile, PMI™ survey data released 29 July signalled that manufacturing production in Japan rose at the fastest rate since February. Consequently, the Composite Output Index, covering activity across both manufacturing and services, rose fractionally from 47.6 to 47.7 in July.

July data pointed to a sixth successive monthly decline in new business received by service providers in Japan. However, the rate of contraction was the slowest since February, and weaker than the long-run survey average. Muted domestic demand was cited by panellists as the principal factor contributing to the latest reduction. Combined with renewed new order growth in the manufacturing sector, private sector new business fell at only a marginal rate in July.

Backlogs of work in the Japanese service sector decreased further during July, suggesting limited pressure on firms’ capacity amid fewer intakes of new business. The pace of backlog depletion was solid, and faster than in the preceding month. This was partly offset at the composite level by a weaker decrease in work-in-hand at manufacturers.

Japanese service providers continued to reduce their employee numbers in July. Furthermore, the pace at which job cuts were implemented was the fastest in 17 months. In contrast, manufacturers recorded a rise in employment for the first time in four months, but this was insufficient to prevent another fall in overall staff numbers.

In the service sector, average input costs decreased for the first time in eight months during July. However, the rate of decline was only marginal. A number of survey respondents reported

that deflation reflected reduced labour-related costs. This, coupled with a slower rise in average costs faced by manufacturers, contributed to the weakest rate of overall input price inflation in 2011 so far.

Prices charged by service sector firms in Japan fell again during July, extending the current period of deflation to 41 months. The rate of output price discounting was marked, and broadly similar to those seen throughout the second quarter. Where a reduction in charges was signalled, this was commonly linked by panellists to strong competition for new business. Composite data signalled the slowest decline in average tariffs since March, mainly reflective of renewed output price inflation in the manufacturing sector.

When questioned about the prospects for business activity at their units over the next 12 months, Japanese service providers expressed a solid degree of optimism. Respondents to the latest survey attributed confidence to expectations that reconstruction work following March’s earthquake will support activity growth. Positive sentiment has now been recorded for three months in succession.