Euro-Area Manufacturing, Services Contract for 10th Month

Euro-area services and manufacturing output shrank for a 10th month in November, suggesting the economy may struggle to pull out of a recession as governments toughen spending cuts to fight the sovereign-debt crisis.

A composite index based on a survey of purchasing managers in both industries rose to 46.5 from 45.7, London-based Markit Economics said today. That’s above an initial estimate of 45.8 published on Nov. 22. A reading below 50 indicates contraction.

The economy of the 17 nations that use the euro has shrunk for two successive quarters and economists foresee a further drop in the final three months of the year as the debt crisis continues to weigh on confidence. The Organization for Economic Cooperation and Development projected last week that the euro- area economy will shrink 0.4 percent this year and 0.1 percent in 2013.

“The euro zone’s recession looks to have deepened in the final quarter, with GDP likely to have fallen by considerably more than the modest 0.1 percent decline seen in the third quarter,” Chris Williamson, chief economist at Markit, said in the report. “France, Spain and Italy continue to see strong contractions, while a milder downturn is evident in Germany.”

The euro was off its session highs against the dollar after the data, trading at $1.3103 at 10:51 a.m. in Brussels, up 0.1 percent on the day.

Record Unemployment

Euro-area retail sales decreased more than estimated in October, the European Union’s statistics office in Luxembourg said today. Sales dropped 1.2 percent from September, when they declined 0.6 percent. Economists had forecast a drop of 0.2 percent, the median of 26 estimates in a Bloomberg News survey.

GDP in the euro zone decreased 0.1 percent in the third quarter after a 0.2 percent drop in the prior three months. The unemployment rate is at a record 11.7 percent and the European Commission forecasts the economy will expand just 0.1 percent next year.

The main leading economic indicators “are firmly in contraction territory,” James Knightley, an economist at ING Bank NV, said on Bloomberg Radio’s “Bloomberg - The First Word.” “There’s little prospect of any meaningful growth in the euro zone until the second half of next year.”

‘Slowest Rate’

Still, Williamson at Markit said he sees “signs that the recession may have reached a nadir,” noting that the final euro-area composite figure was higher than the “flash” estimate. “Services in particular surprised to the upside, contracting to the least extent for three months, while manufacturing output fell at the slowest rate for seven months,” he said.

Markit’s index of services in the euro area was at 46.7 in November, compared with 46 in October and 46.1 in September. A manufacturing gauge published on Dec. 3 rose to 46.2 from 45.4. In Germany, the region’s largest economy, the services gauge jumped to 49.7 from 48.4, exceeding a Nov. 22 initial estimate of 48.

China’s services industries expanded at a slower pace in November, damping hopes for a faster rebound in the economy after a seven-quarter slowdown. The purchasing managers’ index fell to 52.1 from 53.5 in October, HSBC Holdings Plc and Markit said. That contrasts with a government-backed gauge of services that rose to the highest level in three months in November.

In the U.S., growth in services industries probably slowed last month, economists said before a report later today. The Institute for Supply Management’s non-manufacturing index, which covers almost 90 percent of the economy, was at 53.5, down from 54.2 in October, according to the median forecast in a Bloomberg survey.

To contact the reporter on this story: Jones Hayden in Brussels at jhayden1@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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