Spain: Services Contracting, Unemployment Rising, Consumer Confidence Down

Spain's Services Sector Contracted Sharply Again in July

The euro zone's services sector slid further into contraction in July, hitting a five-year low, while inflationary price pressures remained near record levels. Final data in the monthly PMI survey of private sector companies showed that of the big four economies in the euro zone, only in Germany did services activity expand, and in this case slightly more quickly than in June. The RBS/Markit Eurozone Purchasing Managers Index for services companies, which range from banks to cafes, fell to 48.3 in July from 49.1, unrevised from the flash estimate and well below the 50.0 mark that separates growth from contraction.

In among the details there is perhaps some faint comfort for Spain, since the rate of contraction was - at 37.1 - slightly slower than last months 36.7 reading, but that is, as I say, faint comfort, since the rate of contraction is still very strong, and we are contracting over an already greatly weakened June reading, so make of that what you will. The year on year rates now being clocked up must be real shockers if the PMIs are any indication of what is happening at this point.



Companies were particularly pessimistic about the employment situation as they continued to lay-off rising numbers of workers during what has already become a very severe economic slowdown.

"The PMI data for July indicated no improvement at the start of the third quarter as they pointed to a substantial fall in service activity and a record contraction of employment," said Nathan Carroll, economist at Markit. "Furthermore, firms were not expecting an improvement in the near future with sentiment at a survey low."

The Markit employment index - which has now fallen in every month since March 2008 - dropped to 42.6, with hotels and restaurants worst hit. The job creation rate was the lowest in the survey's nine-year history.

Spain's change in the economic cycle has coincided with global credit restrictions and soaring fuel prices, causing a far steeper than expected slowdown and raising risks of recession by early 2009.

The survey found business expectations fell to a record low of 46.1 in July.
It was only the second time companies surveyed have expressed pessimism about business conditions in Spain.

Costs rose to 65.3, marking the highest level since October 2000, after Spanish inflation hit a 13-year high in July. Some companies said staff salaries had risen since June and rising fuel and oil costs were also hitting their margins.

Spain's Unemployment Rises Again In July

Registered unemployment in Spain, where construction firms added more than a million jobs this decade, increased for the fourth consecutive month in July. Unemployment has only fallen now in one month (February, just before the elections) in the last eleven. The number of people claiming unemployment benefits rose 1.5 percent, or 36,492, from the previous month to 2.43 million, according to the Spanish Labor Ministry. From a year earlier, the number of claimants increased by 23 percent, or 456,578.


Home sales and mortgage lending slumped by more than a third in the year to June. Jobless claims among construction workers grew 5.4 percent in July over June. Unemployment in service industries was up 0.8 percent on the month.

Spain's Consumer Confidence Hits Another Historic Low In July

Spanish consumer confidence fell to a new historic low of 46.3 in July from the previous record low of 51.7 hit in June, according to the Official Credit Institute [ICO] Monday morning. A reading of less than 100 indicates pessimism about the economy exceeds optimism. The index started in September 2004.

The index has only risen in one month (February, just before the elections) in the last 15.


All the sub components were also down. A year ago the indicator stood at 92.5, but since then Spain's economy has slipped into a sharp slowdown as the global credit crunch exacerbated the gradually developing grand finale to the country's decade long property bubble.

To help us understand how all this works, and what such a reading might imply, PNB Paribas have kindly prepared a nice chart which overlays consumer confidence (with a 3 month lag) over consumer spending. If this chart continues to give a reasonable representation, then we may expect consumer spending in October to be dropping in much the same way as consumer confidence has just fallen in July.

Spanish consumers may find yet another reason to get pessimistic in a survey of European housing published by ratings agency Standard and Poor's last Wednesday. According to S&P's estimates UK house prices are set to fall by a quarter in total but could find a floor next spring, unlike in Spain, which is set for a longer housing correction.

S&P said the average cost of a house would revert to about 4.4 times average annual earnings - near back to where it was in 2000 - if prices fell by 25 percent overall. S&P said such a drop implied another 17 percent fall for UK house prices, with a trough occurring in April or May 2009, given the market's current rate of decline. The market is down by almost 10 percent since August 2007.

Spain was also likely to see 25 percent peak-to-trough drop in house prices, according to S&P's, but a cocktail of higher interest rates, excess housing supply, and a darker economic climate meant it would take longer to get there, S&P's said.

Standard & Poor’s, also estimated that there are 1 million homes currently looking for a buyer, 500,000 of them newly built. One developer’s association recently forecast as many as 750,000 newly built homes on the market by the end of 2008.

Comments

[notsosmart:]

they,like us,had it good for a long time.what makes people think situations go on forever?specially with the scammers in control.

2008 Aug 06 02:37 PM