Total European roundup from this morning – marginally less bad in the PIIGS, but deterioration into contraction in Germany and especially France.

SPAIN, Services PMI 41.2, up from 40.2

“This Further sharp reductions in activity and new orders were recorded in the Spanish service sector during October as the economic crisis in the country persisted. Falling demand led companies to offer discounts in an attempt to stimulate new orders, despite a solid increase in input costs. Meanwhile, the labour market continued to suffer as the rate of job cuts remained marked.”

ITALY, Services PMI 46.0, up from 44.5

“The volume of outstanding business across the sector decreased in line with the downturn in new work during October, extending the ongoing sequence of depletion to 20 months. A number of firms also commented on improved operative processes as a factor behind the reduction in workin-hand (but not yet completed).

“October saw a further decrease in the level of employment across Italy’s service sector, as firms streamlined workforces in accordance with reduced workloads. The pace of decline eased from September’s 39-month record, however, and was the weakest since July.”

FRANCE, Services PMI 44.6, down from 45.0

“Business activity in the French service sector decreased at a substantial rate in October. This primarily reflected a further drop in incoming new business, as weak economic conditions weighed on demand. The rate of job losses accelerated as service providers responded to excess capacity. Output prices continued to be cut at a sharp rate, despite a further (albeit weaker) rise in input costs. Future expectations deteriorated again, slipping to the lowest level since January 2009.” [emphasis added]

GERMANY, Services PMI 48.4, down from 49.7

“Service providers suggested that subdued underlying client demand continued in October, as highlighted by a seventh successive monthly decline in new business intakes. Although still marked, the latest drop in new work was the slowest since June and much weaker than August’s 38-month record. The composite measure of new business intakes also pointed to contraction, reflecting decreases across both the services and manufacturing sectors.

“The ongoing contraction in new business received by service providers meant that firms focused resources on the completion of outstanding work in October. Volumes of unfinished business have fallen in each month since March, and the latest decline was broad-based across the six subsectors. With manufacturers also noting a drop in backlogs, the composite measure of unfinished work was below the 50.0 no-change mark for the sixteenth month running.” [emphasis added]

GERMANY, Factory Orders down 3.3%

“Orders, adjusted for seasonal swings and inflation, slumped 3.3 percent from August, when they dropped a revised 0.8 percent, the Economy Ministry in Berlin said today. That’s the second straight drop and the biggest since September 2011. Economists forecast a 0.4 percent decline, according to the median of 40 estimates in a Bloomberg News survey. From a year earlier, orders sank 4.7 percent when adjusted for work days.”

EUROZONE, Composite PMI 45.7, down from 46.1

“The downturn was widespread, with output falling at both manufacturers and service providers in all of the big-four economies. The only positive performance was recorded by Ireland, where faster rates of expansion in manufacturing and services took combined growth to a 20-month peak.

“Steep contractions were signalled for Spain, France and Italy in October, although the rates of decline eased slightly in each of these nations compared with one month earlier. The downturn in Germany was less severe overall, but nonetheless faster than that seen in September.” [emphasis added]

Rob Dobson, Senior Economist at Markit said:

“The final Eurozone PMI reading came in at a level historically consistent with the region’s economy contracting at a quarterly rate of around 0.5%, confirming the picture painted by the earlier flash estimate. Sentiment is still being hit hard as companies worry about the dual impact of weak domestic demand and a slowing global economy. This is likely to hit growth in the coming months, especially at a time when cost-caution at manufacturers and service providers is filtering through to the wider economy through rising job losses, reduced purchasing and inventory depletion.

“The downturn is still widespread, with all of the bigfour economies seeing output decline in October.”

UK, Industrial Output -1.7%

“Many economists pointed out that the main driver of the industrial data weakness was a slump in oil and gas production, which was due to maintenance work on North Sea platforms.

“However, manufacturing output rose by a smaller than expected 0.1 percent in September on the month after a downwardly revised drop of 1.2 percent in August, the Office for National Statistics said.”

“The central bank has already bought government bonds worth 375 billion pounds ($599 billion) in its quantitative easing (QE) programme and several central bankers have made cautious comments.

“I think we can expect a downward revision of the (third quarter) GDP figure… More worrying is the effect this might have on fourth-quarter gross domestic product,” said Brian Hilliard, economist at Societe Generale.”[emphasis added]

 

It’s really not a surprise that QE – and the Bank of England has been in a near-continuous QE loop – has little real impact to anyone outside of central banks and the economics profession. Stimulus is everywhere, the world is awash in monetary debasement (some call this liquidity), and global trade and the global economy still tips into contraction. What good is the ECB’s promises if it doesn’t move the real economy in the positive direction? The potential for unlimited bond buying (SMP2) has been terrific for PIIGS bond speculators, but not really so much for anyone in Spain.

Money isn’t the answer because money isn’t the problem. Reshuffling the distribution of credit in and amongst financial participants is not the same as forcing banks to return to real intermediation and refocusing credit distribution on actual production instead of speculation.

Most of these monetary policies were designed and intended to buy time – extend and pretend was a bridge. It has always been assumed that these economies simply needed a temporary boost to get from contraction to cyclical recovery. Once the cyclical recovery began it would cure most of the financial ills. It’s been almost 42 months since the “cyclical” trough and no full rebound, yet central banks are still trying to buy time. That fact, more than any statistic, speaks to the degree of adjustment to be made. It is a mistake, in my opinion, to simply assume an economic system’s “natural” or default trajectory is growth. Likewise, it is a mistake to assume some ill-timed exogenous shock is a necessary predicate for recession.