Euro zone business activity remains robust in August as jobs boom

Gondolas or gondoliers are a characteristic feature of Venice's canals. They have been carrying tourists again with a limited number of passengers in order to avoid infection.
LONDON According to preliminary data, the euro zone economy suffered some weakness in August, but it is still expected to grow steadily in the third quarter.

Flash composite PMIs for the euro area by IHS Markit, which measure activity in both manufacturing and service sectors, fell to 59.5 in August from 60.2 in July. A reading of 50 or more indicates an increase in economic activity.

Chris Williamson, chief economist at IHS Markit, stated that the encouragement came from a second month at the strongest job creation rate in 21 years. This reflects firms' efforts to increase operating capacity and meet demand. It should also help lower price pressures.

These latest data show that many consumers in the region have seen their Covid-related restrictions lifted, which has helped boost the economic recovery following the pandemic.

According to growth estimates, the euro area has bounced back from technical recessions (defined as two consecutive quarters with economic contraction), by increasing by 2% in this year's second quarter.

These data releases are crucial as the European Central Bank will meet next month. Some of its members want to talk about reducing the current stimulus.

However, there are concerns about supply chain problems and higher inflation.

Williamson said, "The concern is that there is some upward movement in wage growth as a consequence of the job market gains, which could feed through into higher inflation and supply delays from Asia in particular seem likely to persist for some while."

In manufacturing, momentum was slower than in services. In August, the former experienced a six-month slump while services saw a drop of two months.

Williamson spoke Monday to CNBC's "Street Signs Europe", stating that although supply chain problems aren't as prevalent as they were before, they are still limiting growth in manufacturing.

He said that the PMI growth rates are still high, but that they were not very common. These indexes rarely stay at this level for very long, simply because there is so much growth. There is no reason to be concerned about any cooling.