U.S. Markets

Strong services PMI spotlights a tale of two German economies

BERLIN, (Reuters) - Employment, prices and backlogs all grew in Germany’s services sector in March, a survey showed, but failed to offset weakness in the manufacturing sector of Europe’s largest economy.

Index provider Markit’s services Purchasing Managers’ Index (PMI) inched up to 55.4 in March, its highest since September, from 55.3 in February, helped by strong domestic demand and a rise in customer numbers, though non-domestic clients were more cautious.

Growth was strong across the telecoms, rent and business activities and financials sectors, although levels of activity were slightly lower in the hospitality, transport and other services sectors.

Robust services employment drove up wages in the sector, which firms were able to pass on: output price inflation in March was the fastest since data collection began in 1997, Markit said.

Continuing weakness in the industrial sector meant that Markit’s Composite PMI index -- which scores activity levels across both sectors -- nonetheless slipped slightly to 51.4 from 52.8. That was still above the 50 mark that separates growth from contraction, but the lowest reading since June 2013.

That weakness was underscored by the largest drop in goods production in almost seven years.

“The survey suggests that domestic demand is remaining resilient in the face of external headwinds,” said Markit economist Phil Smith, “with services firms seeing the strongest increase in overall new business for six months despite a drop in new work from abroad.”

Reporting by Thomas Escritt; Editing by Catherine Evans