European Services PMIs Are Contracting

As expected by the consensus, the eurozone's PMIs fell for the fourth consecutive month. Manufacturing indexes were down sharply again, suggesting more trouble ahead for manufacturers, particularly in Germany. UK output, which had held up relatively well in a challenging economic environment, also faltered, posting a contraction in activity in August. However, most noteworthy in today's data release is the continued decline in the services indexes, which dropped below 50 in August. This slowdown in the services sector means that the last pillar of strength in the eurozone economy is weakening. In Australia—where PMIs are pointing to an economic slowdown—the situation isn't much better. Meanwhile, Japan's second-quarter real GDP print surprised to the upside and the country is faring better than other advanced economies as shown by its PMIs.

With the services PMI now under the 50 threshold indicating that the sector is contracting, the eurozone's economic challenges are no longer confined to manufacturing. The European economy may have to endure further pain as monetary tightening continues to increasingly hobble growth.