Services Production Down By 0.1% In The Euro Area And Up By 0.1% In The EU

Data Interpretation

Summary:

May 2024 compared with April 2024,Services production down by 0.1% in the euro area and up by 0.1% in the EU.Up by 2.5% in the euro area and by 2.6% in the EU compared with May 2023.

Overview

In May 2024, compared with April 2024, seasonally adjusted services production decreased by 0.1% in the euro area and increased by 0.1% in the EU, according to first estimates from Eurostat, the statistical office of the European Union. In April 2024, services production grew by 1.0% in both the euro area and the EU.

In May 2024, compared with May 2023, services production increased by 2.5% in the euro area and by 2.6% in the EU.

Monthly comparison by service industry and by Member State

In the euro area in May 2024, compared with April 2024, services production decreased for transportation and storage by 1.2%;increased for accommodation and food services by 2.0%;increased for information and communication by 0.6%;decreased for real estate activities by 0.2%;decreased for professional, scientific, and technical activities by 0.1%;decreased for administrative and support services by 0.2%.

In the EU, services production decreased for transportation and storage by 0.7%;increased for accommodation and food services by 1.9%;increased for information and communication by 0.4%;decreased for real estate activities by 0.2%;remained stable for professional, scientific, and technical activities;decreased for administrative and support services by 0.1%.

Among Member States for which data are available, the highest monthly increases were recorded in Romania (+17.7%), Luxembourg (+3.6%) and Malta (+2.5%). The largest decreases were observed in Slovakia (-1.9%),Denmark (-1.8%) and Slovenia (-1.6%).

Annual comparison by service industry and by Member State

In the euro area in May 2024, compared with May 2023, services production increased for transportation and storage by 0.2%;decreased for accommodation and food services by 1.5%;increased for information and communication by 7.8%;increased for real estate activities by 1.1%;increased for professional, scientific, and technical activities by 2.9%;increased for administrative and support services by 1.5%.

In the EU, services production increased for transportation and storage by 0.1%;decreased for accommodation and food services by 1.1%;increased for information and communication by 7.7%;increased for real estate activities by 1.7%;increased for professional, scientific, and technical activities by 2.7%;increased for administrative and support services by 1.3%.

Among Member States for which data are available, the highest annual increases were recorded in Luxembourg (+16.6%), Malta (+16.5%) and Romania (+14.0%). The largest decreases were observed in Greece (-6.2%), Denmark (-3.2%) and Austria (-3.0%).

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BOC

Remarks of Officials

Central Bank

On August 7, the Bank of Canada released the minutes of its monetary policy meeting, with main points as follows:

After weakness in the second half of 2023, GDP growth resumed in the first quarter of 2024, which is largely driven by population growth. However, on a per-person basis, GDP appeared to have contracted. As the uncertainty about population growth exacerbates the economic outlook uncertainty, the economy clearly remained in excess supply. With population growth expected to ease, GDP growth was forecast to increase in the second half of 2024 and was expected to grow by about 2.25% within two years.

Consumer price index (CPI) inflation eased to 2.7% in June. Inflation had become less broad-based across goods and services, but shelter prices remained the largest contributor to overall inflation. Rent inflation had risen further to close to 9% in June. Strong demand for housing and limited supply would continue to put upward pressure on rent.

Core inflation was expected to ease gradually to about 2.5% in the second half of this year and then ease further in the target of 2% in the second half of 2025.

Labor market slack had emerged. The unemployment rate had gradually risen to 6.4% in June. While prime-age workers had seen limited impact on their job prospects, it had become harder for new entrants to the labor force—young workers and newcomers to Canada—to find work. Job vacancies had come down to around their historical average and the job finding rate had declined. Slack in the labor market was expected to persist as labor force growth would continue to outpace employment growth in the near term.

Wage growth remained elevated at around 4%, well above productivity growth. Wage growth was expected to moderate given the presence of labor market slack and weak labor productivity.

Members agreed that the ingredients for price stability were in place. With inflation closer to target and downside risks to the outlook for inflation becoming more prominent, there was a clear consensus that it would be appropriate to lower the policy rate further if inflation continued to ease in line with the projection.

BOC Summary of Governing Council Deliberations

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Samantha Luan

Economic

Despite fears that the Federal Reserve has fallen behind the curve on cutting US interest rates, economists believe fears of a looming recession are an overreaction.

After deciding to hold rates steady last week, Fed chairman Jerome Powell signalled a rates cut in September is on the table and suggested some officials favoured one in July, but a strong majority wanted to keep rates at their current level.

A monthly employment report released by the Labour Department showed the jobs market had cooled more than expected in July.

Employers added 114,000 jobs compared with expectations of 185,000, while the unemployment rate ticked up to 4.3 per cent.

While the report appeared concerning, San Francisco Fed president Mary Daly said there is more confidence that the US economy is decelerating but not deteriorating.

"This is what we would expect: slowing but not falling off a cliff," she said during a forum in Hawaii.

Market overreaction

Fearing the Fed had fallen behind the curve – as well as the potential for war between Israel and Iran – global markets hit the panic button.

On Monday, Wall Street had its worst day since 2022. Market volatility spread into Europe, Asia and the Middle East, while US stocks hit session lows on Wednesday.

"I'm kind of surprised that the markets have responded so strongly to it," said John Leahy, a macroeconomics professor at the University of Michigan and former New York Fed visiting scholar.

Satyam Panday, chief US economist at S&P Global, agreed: "I was quite surprised by the reaction that came out."

Both said too much focus had been placed on the unemployment rate.

"We are of the view that it is more normalisation than anything else," Mr Panday said.

And while Mr Leahy considered the report "certainly concerning" and a "mixed message", he noted the increase in the unemployment rate was because more people had entered the labour force.

The labour force participation rate, which measures the percentage of people in the workforce or looking for work, slightly increased from 62.6 per cent in June to 62.7 per cent in July.

Strategists also appeared surprised by market moves.

"The market is pricing in a policy mistake by the Fed with new recession fears and is worried that the Fed is now behind the curve," Clark Capital Management chief investment officer K Sean Clark wrote to clients.

"We believe that is probably an overreaction."

Peter Andersen, founder of Andersen Capital Management, said the strong negative reaction is because of the huge influence the artificial intelligence companies have in the market.

Nvidia and Tesla shares have fallen nearly 16 per cent since last Thursday. Shares in Alphabet, Amazon and Meta have dropped as well.

"It shows you the tender underbelly of this market right now," Mr Andersen said.

He supports no rate cuts this year and believes the Fed's interest rates still need to work their way through the economy.

"I know there are pockets of the economy that doing very poorly but, in general, consumer sentiment is strong.

"The stock market is strong. Companies' earnings [have] high expectations, but so far they have been exceeding those expectations."

Cooling labour market

For more than a year, the Federal Reserve has held interest rates at their current level in the hopes of achieving a soft landing, slowing the economy without pushing it into recession.

The Fed first embarked on its tightening cycle in 2022, raising interest rates from their near-zero level to their current range of 5.25-5.50 per cent in response to a global surge in inflation.

The US central bank's preferred inflation metric has fallen to 2.5 per cent, close to its 2 per cent target.

At the same time, there have been signs of a cooling labour market, most notably in a slowdown in job gains and a rise in the unemployment rate.

The Federal Open Market Committee acknowledged last week that these two risks are coming into better balance.

"They now weigh both inflation and the employment mandate basically equally, like the risks around it are being weighed equally," Mr Panday said.

"You know, previously, it was more on the inflation side.

"If you are going to wait equally, then yes, the labour market, things that are happening right now has to be taken into consideration and it's better to start cutting rates sooner than later."

Mr Panday said S&P Global's baseline scenario is for rate cuts of 50 basis points this year, starting with a quarter-rate cut in September, before cutting by 125 basis points in 2025.

Already, investors have virtually locked in a September rate cut. The idea of a rate cut before the September meeting – which would mean an emergency rate cut – is unlikely to happen.

"An emergency rate cut seems to think that … if the Fed doesn't act the world's going to fall apart. It's not obvious that the world's going to fall apart," Mr Leahy said.

With Mr Powell insinuating the likelihood of a rate cut, Mr Leahy said telegraphing such actions feeds into rates that directly affect consumers.

After the rate-cut signals, US mortgage rates fell to a 15-month low at 6.55 per cent, the Mortgage Bankers Association reported on Wednesday.

Soft landing still within sight

After a bumpy first quarter, a soft landing appears within sight.

"That is our base case, actually. We do think that's the most likely case," Mr Panday said.

Risks such as geopolitical factors, the US election and potential disruptions in the financial market all have the potential to throw the Fed off course. But Mr Panday said a recession is not the most likely scenario.

Assessing whether the US is in the beginning of a recession is difficult to determine as well, given the lag in employment data.

"It's not clear – we might be going into recession. We might not be going into recession," Mr Leahy said.

Mr Powell last week suggested the Fed was closer to cutting rates than at any time since first raising them in March 2022.

"The amazing thing is how the Fed has brought inflation down from decade-highs to something in the range of its target without there being significant slowdown of the economy," Mr Leahy said.

"And the Fed has almost stuck the landing. Do I think that … [had] they lowered rates on last week, rather than in September, it would have a huge effect? Probably not."

Source: The National News

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ADP

Data Interpretation

Economic

That confidence turned suddenly on Friday on weaker-than-expected jobs data. Job gains fell from an average of 215,000 jobs a month over the preceding 12 months to just 114,000 in July, according to the Bureau of Labor Statistics. The unemployment rate increased from 4.1 percent to 4.3 percent.

The weaker data led many market watchers to worry anew about the risk of a hard landing that might lead to recession. The broad stock market closed down more than 1.8 percent.

But it’s probably too soon to use the R word. Here are three reasons why.

Employment is growing faster than it did before the pandemic

Friday’s non-farm payrolls report showed slower July job gains than the average for the preceding 12 months, but the United States continues to grow total employment at a faster pace than it did before the pandemic.

In July 2019, the workforce grew 1.3 percent year over year, adding just 90,000 jobs. Last month, employment was up 1.6 percent from a year ago, with 114,00 jobs created.

Through 2023, employers had to hire aggressively to replace workers they had lost during the pandemic and were forced to compete for talent during the Great Resignation. But those pandemic-initiated convulsions to the labor market have eased. Workers now are staying with their employers longer and quits are returning to pre-pandemic levels.

Companies that were hiring in July are growing their workforce, not just replacing fleeing workers.

More people are working, and workers are more productive

Two things were lost in last week’s labor market news.

The first was an increase in labor productivity, which economists measure as output per worker. After growing by only 0.4 percent in the first three months from a year earlier, labor productivity increased by 2.3 percent in the second quarter.

An increase in labor productivity is a win-win for the economy. When production grows faster than labor hours, wages rise and profits increase, which helps keep inflation at bay.

The second missed data point was that labor force participation for workers aged 24 to 54 rose to 84 percent in July, the highest level since 2001.

These numbers underscore the fact that job losses weren’t to blame for the small uptick in unemployment. Instead, the increase was driven largely by people entering the labor force, lured by higher wages.

Wages still are rising faster than inflation

Wage growth accelerated rapidly during the pandemic, but even that strong growth couldn’t keep up with soaring inflation. Real wages, or wages adjusted for inflation, actually fell in 2021 and 2022.

Pay Insights data from ADP Research shows that pay growth is slowing and the premium that typically comes from switching jobs is shrinking. Still, as long as inflation keeps trending lower, positive real wage growth can continue to support consumer spending.

opinion

Over the last four years, economists and market watchers repeatedly have warned that a recession is close at hand, only to reverse their outlook when better economic data is released. This might be another one of those times.

The labor market is cooling. It’s taking longer for workers to get jobs. Hiring is slowing and the unemployment rate is rising from record lows closer toward historical averages. But none of that signals an imminent recession.

There’s a middle ground between a soft landing with steady job creation, which might be too optimistic, and hard landing with widespread job losses, which might be too dire. It’s a bumpy but safe landing, one in which inflation continues to abate and hiring increases modestly. July jobs data might just be reminding us what normal looks like.

To stay updated on all economic events of today, please check out our Economic calendar

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Warren Takunda

Cryptocurrency

Bitcoin has “purged” market speculators as liquidations reach $365 million, new research says.

In the latest edition of its weekly newsletter, “The Week Onchain,” crypto analytics firm Glassnode confirmed a “statistically significant capitulation.”

Bitcoin unrealized losses echo FTX

Bitcoin short-term holders (STHs) have come under intense pressure thanks to this week’s BTC price crash.

As Cointelegraph reported, at one point, these newcomer entities sold $850 million of BTC at a loss. Now, new findings from Glassnode show the extent to which overleveraged players have been removed from the market.

STH entities are those hodling a given unit of BTC for 155 days or less, while their counterparts, the long-term holders (LTHs), hodl for more than 155 days.

STHs tend to be far more sensitive to market shocks than LTHs, and this week’s trip to $49,500 was no exception.

“Short-Term Holders are currently holding the largest unrealized loss since the FTX implosion, which again highlights a point of serious investor stress imposed by current market conditions,” Glassnode summarized.

Just 7% of STH holdings currently sit in profit, a number that echoes the BTC price dip below $30,000, which began a year ago.

“This is also more than -1 standard deviation below the long-term average for this metric, and suggests a notable degree of financial stress amongst recent buyers,” the research added. Bitcoin Speculators Sit on 93% Unrealized Losses After $365M ‘Wipeout’_1

Bitcoin Speculators Sit on 93% Unrealized Losses After $365M ‘Wipeout’_1

Bitcoin STH % supply in profit with standard deviation bands (screenshot).

Glassnode likewise confirmed that STHs are “dominating” onchain losses, with just 3% attributable to the LTH cohort.

Various other metrics provided similar insights into the speculator wipeout, with the research characterizing the broader market reaction to the price declines as “one of panic and fear.”

The STH spent output profit ratio (SOPR) metric, for instance, recorded lows only surpassed on 70 days in Bitcoin’s history.

“Short-Term Holder SOPR has also reached staggering depths, as new investors locked in a -10% loss on average,” “The Week Onchain” commented. Bitcoin Speculators Sit on 93% Unrealized Losses After $365M ‘Wipeout’_2

Bitcoin Speculators Sit on 93% Unrealized Losses After $365M ‘Wipeout’_2

Bitcoin STH SOPR chart (screenshot).

An “exceptionally eventful month” for Bitcoin

SOPR has not gone unnoticed elsewhere. In one of its Quicktake blog posts on Aug. 7, onchain analytics platform CryptoQuant drew similar conclusions, suggesting that current prices could mark a potential buying opportunity.

“We know that the metric last reached the 0.95 level in December 2022, which initiated a bull run,” contributing analyst XBTManager noted.

“During bull trends, the 0.95-0.90 range is usually a good buying level. Currently, the metric is at 0.90.”

Concluding, Glassnode called August an “exceptionally eventful month.”

“Bitcoin recorded its largest drawdown (-32%) from the ATH of the cycle, and precipitated a statistically significant capitulation amongst Short-Term Holders. Futures liquidations fuelled the fire, with over $365m worth of contracts forced closed, and creating a 3 standard deviation reduction in open interest,” it wrote.

“This has led to a meaningful flush out of leverage, and paves the way for on-chain and spot market data to be of key importance for analysts assessing the recovery in the weeks to come.”

Bitcoin futures liquidations (screenshot).

Source: Cointelegraph

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S&P Global Inc.

Economic

Data Interpretation

Service sector outperforms

July saw another strong expansion of business activity in the service sector, according to S&P Global's PMI surveys, which over the past three months has enjoyed its best growth spell for two years.

The robust service sector growth contrasts with the deteriorating picture seen in the manufacturing sector in July, where output came close to stalling.

While manufacturers are reporting reduced demand for goods, this in part reflected a further switching of spending from consumers towards services such as travel and recreation. However, healthcare and financial services are also reporting buoyant growth, fueling a widening divergence between the manufacturing and service economies in recent months.

Robust GDP gains signaled for July

Thanks to the relatively larger size of the service sector, the July PMI surveys are indicative of the economy continuing to grow at the start of the third quarter at a rate comparable to GDP rising at a solid annualized 2.2% pace. While that is below the 2.8% recorded in the second quarter, according to official first estimates, it still represents a healthy upturn and compares favorably with recent signs of stalling growth in the eurozone during July.

Although the headline S&P Global US PMI Composite Output Index fell for a second month from 54.8 in June to 54.3 in July, the latest reading was the third highest recorded over the past 14 months, and is marginally above the survey's long-run average of 54.2.

Prices rise at slower rate

A further cooling of selling price inflation in the service sector meanwhile brings encouraging news for the Fed. Average prices charges rose at the slowest rate since January, hinting that inflation rates are moderating again after ticking higher in the spring. The latest rise was in fact the second-lowest since June 2020.

Combined with a near-stalling of price increases in the manufacturing sector, the softer rise signaled in the service sector survey data point to average prices charged for goods and services rising at a slower rate which is indicative of consumer price inflation moving closer to their 2% target.

Rising costs cast shadow over inflation outlook

If there is a blot on the inflation landscape it comes from the survey data on firms' costs. In particular, input cost inflation in the service sector, which is dominated by wages and salaries, rose at an increased rate in July, rising at a pace well above the pre-pandemic average. Similarly, manufacturing input costs also rose at a solid pace, albeit in the case of manufacturing the rate of increase was slightly below the pre-pandemic average. Policymakers will likely be eager to see these cost pressures soften before being confident of inflation falling sustainably to target.

To stay updated on all economic events of today, please check out our Economic calendar

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S&P Global Inc.

Data Interpretation

Economic

Summary

The KPMG and REC, UK Report on Jobs survey,compiled by S&P Global, indicated a decline in permanent staff placements again in July, extending the current downturn to nearly two years. Recruitment consultants reported an increased volume of redundancies at clients.Temp billings also fell, albeit fractionally, as firms chose not to renew or replace expiring temporary contracts.

Nonetheless, permanent salaries continued to increase as firms remained willing to raise starting pay for suitable candidates, which in some cases remained in short supply. However, inflation fell slightly and was below trend.Moreover, as demand for staff fell, temp pay rates rose only slightly and to the weakest degree for nearly three-and-a-half years.

The report is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 UK recruitment and employment consultancies.

Concurrent declines in permanent and temporary staff appointments

The KPMG/REC Report on Jobs data showed that permanent staff appointments continued to fall in July, albeit at a slower rate. A reduced number of vacancies and subdued demand for staff was reported to have led to the decline in placements.There was also a reduction in temp billings in July, although the rate of contraction was marginal.There was evidence of firms choosing not to replace workers whose contracts had expired.

Pay rates continue to rise

Despite making fewer appointments in July, companies continued to raise permanent staff salaries. The rate of inflation was again marked, though a little softer than in June and below the survey average. Panellists noted that firms were willing to raise pay to attract workers amid a dearth of suitable candidates. Temp pay also increased, although the rate of inflation was marginal and the weakest for nearly three-and-a- half years. Higher temp staff availability weighed on pay rates.

Marginal decline in demand for staff

Vacancy numbers in the UK labour market continued to decline during July extending the current period of contraction to nine months. The pace of reduction was however marginal and slower than in June. Moreover, there was some divergence between permanent and temp staff demand. Whereas the latter recorded slight growth, a modest contraction was seen for permanent workers.

Staff availability rises again in July

The availability of candidates for both permanent and temporary positions continued to rise in July.Rates of growth were softer than in June, easing in each instance to the lowest for five months.Higher staff availability reflected a combination of increased redundancies at firms and a reduction in demand.

Regional and Sector Variations

Latest data showed that permanent placements fell most noticeably in the South of England. In contrast, a modest increase in placements was seen in London.

Temp billings rose in the Midlands and the North of England but fell in London and the South of England.

Half of the sectors covered by the survey showed growth in permanent staff vacancies during July.The strongest increase was for Nursing & Medical Care staff, followed by Engineering. The steepest decline in permanent staff was for IT & Computing.

Temp vacancies were up across seven sub- categories in July, led by Blue Collar and Engineering. The steepest decline in temp vacancies was seen for Executive & Professional workers.

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