Service sector spotlight shines on Germany, China

China’s service sector expanded at its fastest pace in four months in August on the back of strong domestic demand, but the headline figure was below the long-run average of the series. HSBC said its Purchasing Managers’ Index for Chinese services, which account for much less of output than in more developed countries, rose to 57.6 in August from 56.3 in July.

In the 16-nation euro zone, whose economy is heavily weighted to the service sector, the pace of recovery was barely changed in August from July but signaled a growing split, with a pick-up in Germany -- the region’s largest economy -- offset by Spain’s slide back into contractionary territory. In the United States, the non-manufacturing sector grew in August for an eighth straight month but at a slower pace than July and at a rate that was below expectations. Markit’s Eurozone Services Purchasing Managers’ Index for the service sector, which accounts for roughly two-thirds of the euro zone economy, nudged up to 55.9 in August from 55.8 in July -- a strong overall reading. “The surveys highlight the uneven performance of the euro zone economies, with Germany currently performing very well, France decently, Italy growing modestly and Spain and Ireland still struggling to develop recovery,” said Howard Archer, chief European economist at IHS Global Insight.

The bloc’s economy expanded 1.0 percent in the second quarter over the first, the fastest pace in more than three years, although it was a reflection of Germany’s resurgence. Spain’s services PMI fell to 49.2, the first time the index slipped below the 50.0 line that separates growth from contraction since February. And Britain’s dominant service sector marked its slowest growth last month since April 2009, with a marked fall in hiring as employers worried about an economic slowdown and public spending cuts.

The headline Markit/CIPS services purchasing managers’ index dropped to 51.3 in August from July’s 53.1, a much sharper fall than the decline to 52.9 forecast in a Reuters poll. Governments are turning their focus to slashing budgets as they face up to paying off the billions of dollars pumped into economies to drag them out of the worst post-war recession.

payrolls forecast to fall again

For the United States, the Institute for Supply Management said its index of national services activity fell to 51.5 in August from 54.3 in July. That was below market expectations of 53.5.

The report’s employment component fell to 48.2 from 50.9, while new orders dipped sharply to 52.4 from 56.7, suggesting a slowdown in the sector. But the US government’s closely watched monthly report on nonfarm payrolls painted a more optimistic picture of the labor market, even though employment fell for a third straight month in August. The Labor Department reported nonfarm payrolls declined by 54,000, well below market expectations of a drop of 100,000. And private employment, considered a better gauge of labor market health, rose by 67,000, compared with expectations of a rise of only 41,000 in August.

The unemployment rate, however, inched higher in August, to 9.6 percent from 9.5 percent in July. “In the euro zone there is not at the moment the risk of a double dip, a risk that instead is present in the United States,” Hans-Werner Sinn, president of Germany’s IFO economic research institute, told reporters in Cernobbio, Italy. But even though fears of a double-dip recession in the United States persist, after the release of the US jobs data, which follows data this week that showed strength in manufacturing and gains in consumer spending, economists in the United States downplayed such likelihood. “It is inconsistent with fears that a sharp slowdown in the economy is under way,” said Dean Maki, chief US economist at Barclays Capital in New York.

However, with unemployment stuck near 10 percent and the impact of the government’s $862 billion economic stimulus fading, investors worry that the US economy may face a period of near-stagnation even if it avoids a double-dip recession. US growth braked to a 1.6 percent annualized rate in the second quarter after a brisk 3.7 percent in the first quarter. The big question is whether Asia and Europe’s biggest powers could carry on prospering or would inevitably be dragged down by the world’s largest economy, whose markets they still heavily rely on for export demand.