Germany service activity growth weaker than expected in September

German business activity grew by less than anticipated in September, as cost inflation in the service sector rose for a second consecutive month, data published by S&P Global showed Friday.

The Hamburg Commercial Bank Germany services purchasing managers' business activity index improved to 51.5 points in September from 49.3 in August. Swinging above the neutral 50-point mark separating growth from contraction, it indicates a return to growth in September and represents an 8-month-high. However, it was below the flash reading of 52.5 points.

The wider composite PMI, measuring the private sector economy and calculated using a weighted average of the services and earlier manufacturing reading, rose to 52.0 points in September from 50.5 in August, but was below the flash reading of 52.4 points. The index score still represented a 16-month-high.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said: "At first glance, the PMI figures for September are encouraging. The service and manufacturing sectors have together seen a robust increase in output, and the pace of expansion is at its highest in sixteen months. However, there are some downsides. In the manufacturing sector, new orders fell in September, ending a three month growth streak. And in the service sector, new business has shrunk again, albeit the decrease has softened a bit compared to the previous month. It therefore does not look as if output in the private sector will rise sustainably in the coming months, unless demand revives."

Cost inflation in the service sector rose for a second consecutive month with sales difficulties compounded by rising costs, the economist noted, adding that service providers are cautiously cutting workforces as they gradually respond to the slump in orders.

De la Rubia continued: "Over the past two years, there have been repeated episodes where companies have reduced their employment, but for the most part, the number of jobs has increased. The fact that staff numbers have been cut for two months in a row does not necessarily herald a phase of job losses. However, there is increasing discussion about whether artificial intelligence is already making jobs redundant on a significant scale. It is therefore worth keeping a close eye on this development."

On Wednesday, S&P Global had reported that Germany's manufacturing output showed record growth in September, but forward-looking indicators weakened, S&P Global had reported on Wednesday.

The headline Hamburg Commercial Bank manufacturing PMI declined to a two-month low of 49.5 points in September from a 38-month high of 49.8 in August. However, it surpassed the flash reading of 48.5 points.

The manufacturing output index rose to 53.0 points in September from 52.9 in August, showing the sector's "strongest production growth in three-and-a-half years".

The services PMI is compiled by S&P Global from survey responses by purchasing managers in a panel of 400 service sector companies in Germany. The latest data was collected between September 11 and September 25. The Germany construction PMI will be released on Monday.