European Recession?

Is Europe falling into a recession? It seems to be heading in that direction. Let’s review the latest business indicators:

(1) Europe’s manufacturing PMI is under 50. The EU’s manufacturing purchasing managers index (M-PMI) dropped to a 25-month low of 48.5 in September, the second straight reading below 50.0. Only Germany saw its M-PMI hold above the breakeven point, but barely, with its index at a two-year low of 50.3. Italy was the only EU country to show an increase in its M-PMI in September, but at 48.3 it was the second sharpest contraction in two years, with August’s the steepest at 47.0. The UK saw a moderate expansion in manufacturing activity last month, as its M-PMI climbed to 51.1 from just under 50.0 in both July and August.

(2) Europe’s non-manufacturing PMI is also under 50. Markit’s euro zone non-manufacturing purchasing managers index (NM-PMI) fell from 51.5 in August to 48.8 last month, its lowest reading since July 2009 and below an earlier flash reading of 49.1. September is the first month that the index has been below the 50 mark that divides growth from contraction, since August 2009. Germany showed activity close to stagnation, while in France the rate of growth slowed to a 26-month low. Italy's service sector contracted for the fourth month and at a faster pace than expected, while Spain's shrank for the third straight month.

(3) Ditto for the composite PMI. The composite PMI--combining the services and manufacturing data--fell from 50.7 in August to 49.1, its lowest level since July 2009.

(4) European production indexes held up during August, when  factories are mostly closed. Actual production indexes were mostly higher during August. That’s not saying much, since the data are boosted by seasonal adjustment factors to reflect the fact that many factories are closed during the month. So for what they’re worth, August industrial production edged down by 1.0% in Germany, rose 0.5% in France, jumped 4.3% in Italy, and unexpectedly increased 0.3% in Spain.