The latest Markit servey data released on Thursday confirmed that Germany's manufacturing recession continues to broaden. The worst fears are now being realized as loose ECB monetary policy is failing to contain the economic slowdown as it successfully transmits weakness from manufacturing into the services and jobs market.
IHS Markit's Flash Germany Manufacturing PMI remained little changed at 41.9 in October, a slight increase from September's ten-year low of 41.7, however red alerts flashed below the surface as employment in Germany's factory industry fell the most in almost 10 years.
What is just as concerning is that the weakness in manufacturing has clearly infected Germany's relatively immune - until now - service sector, as Germany's Service PMI fell to 51.2 from 51.4 in Sept, down sharply from 54.7 a year ago, and the lowest reading since Sept. 2016. Notably, New Business orders dropped to 47.6 vs 48.6 in Sept, the lowest reading since June 2013.
The Composite Index, registered 48.6 in October, little-changed from September’s near seven-year low of 48.5 and below the 50 unchanged level for the second month in a row. However, most ominously, the survey showed employment falling for the first time in six years.
🇩🇪 Stabilization in Oct manufacturing #PMI is encouraging, but the next months will tell how durable it is. More worrying for #growth outlook is the further weakness spilling over the service sector, raising the risk of a more protracted downturn. #Germany is not out of the woods pic.twitter.com/ldhnsty08D— Aila Mihr (@aila_mihr) October 24, 2019
The rapid deceleration of manufacturing in Europe's largest industrial hub has severely weighed on employment, now falling for the first time in six years according to Markit:
"October saw employment across the German private sector fall, albeit only slightly, for the first time in six years. Job losses were largely centered on manufacturing, where staffing numbers fell to the greatest extent for nearly ten years amid the widespread paring of temporary and contract workers. That said, a slowdown in service sector job creation to a three-and-a-half-year low was also recorded.
The drop in overall employment in October was in line with signs of easing capacity pressures and a deterioration in business confidence towards the future activity. Firms reduced backlogs of work for the twelfth month in a row and at the quickest rate for nearly seven years," IHS wrote.
Commenting on Germany's manufacturing recession spreading into employment is Phil Smith, Principal Economist at IHS Markit, who said:
"Hopes of a return to growth in Germany in the final quarter have been somewhat dashed by the October flash PMI numbers, which show business activity in the Eurozone's largest economy contracting further and underlying demand continues to soften.
"Manufacturing remains the main weak link, though here there are some signs of encouragement with rates of decline in production and new orders easing and business confidence improving to a four-month high.
"Perhaps most concerning are the signs of increasing strain on the domestic economy, with the growth of service sector activity slowing to the weakest since September 2016 and employment now in decline for the first time in six years."
IHS Markit highlight that the German services PMI dropped to the lowest since September 2016 pic.twitter.com/5PSX62MOIt— Justin McQueen (@JMcQueenFX) October 24, 2019
The souring outlook in Germany is a clear indication the Eurozone might not see a recovery this year. The world as a whole, is stuck in a synchronized global downturn, where monetary policy is becoming less effective than ever before to generate a 2016 style rebound. The calls for fiscal stimulus by ECB authorities, global banks, and governments tell us that elites who run the world know that central banking died in 2019. This should terrify us all that central banks' supposed monetary cannons, or let's say monetary toolkits, are likely depleted. Who is ready for helicopter money and MMT?