• Prior 47.1
• Final Composite PMI 50.4 vs 50.4 prelim
• Prior 48.5

Key findings:

• Pace of job creation ticks up as declines in new work and backlogs ease

Comment:

Commenting on the PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:

“Service providers have been having somewhat of a tough time for three months now. After a deeper slump in May, the situation has stabilised somewhat, but business activity declined again in June. It has been difficult to pinpoint exactly where the sector is in the economic cycle for several years now. Since Covid-19, relatively strong volatility has been observed in activity in this sector, where growth and contraction alternate at relatively short intervals.

“We expect economic growth in Germany to pick up in the second half of the year, benefiting not only the construction sector and industry, but also the service sector. This is backed by the massive economic stimulus package that the German government is currently putting in place. We should not expect miracles, but we do expect a solid boost for growth, which could be around 1.6 percent next year.

“In addition to sluggish demand, service providers continue to be hit by relatively sharp cost increases. At least companies are in a position to pass on some of these cost increases to their customers. In June, companies managed to raise their sales prices at almost the same rate as in the previous month. From a corporate perspective, this points to a relatively healthy market structure without ruinous price competition.

“Service providers are still unwilling to bring themselves to make bold job cuts. On the contrary, more people were hired in the last month than in May. Taking a positive view, this could be interpreted as meaning that service providers are confident that they will soon receive more orders. This is backed by the anecdotal evidence of some companies that want to expand capacity and by an uptick in expectations for future activity, even though they remain subdued by historical standards.

“Being a bit more sceptical, higher employment could suggest that more people are needed to achieve a similar level of activity as before. Corporate employment policy of expanding the workforce would be the result of many people only partially meeting the requirements of their jobs – thus you need more of them to do the same amount of labour – and therefore labour productivity declines. We are inclined to back this – admittedly bold – thesis.”

This article was written by Giuseppe Dellamotta at www.forexlive.com.