Finance counsels

Europe’s manufacturing and services industries expanded more than initially estimated in September, adding to signs the economy is gaining steam after the worst recession in six decades.

A composite index of both industries in the euro-area economy rose to 51.1, up from 50.4 in August and higher than an initial estimate of 50.8, London-based Markit Economics said today in a statement. A reading above 50 indicates expansion and the gauge, which is based on a survey of purchasing managers, had remained below that level for 14 months before topping it in August. Economists had projected the index would rise to 50.9 in September, according to a Bloomberg News survey.

The euro-area economy barely contracted in the second quarter as Germany and France returned to growth. The region’s gross domestic product will expand 0.3 percent in 2010, the International Monetary Fund said on Oct. 1, as it trimmed its estimate for this year’s contraction to 4.2 percent from the 4.8 percent it forecast in July.

“We see a good chance that GDP growth outperforms the survey data in the third and fourth quarters,” said Ken Wattret, chief euro-zone economist at BNP Paribas in London. “The underlying condition of the economy remains poor, however,” and a weak labor market is “an obstacle to sustained growth,” he said.

Labor Markets

Euro-area unemployment rose to 9.6 percent in August, the highest in more than a decade, and the IMF last week forecast it will reach 11.7 percent next year, higher than in the U.S. or the U.K. While there are “encouraging signs” of a recovery, the world economy remains fragile and labor markets are yet to improve, the Group of Seven ministers and central bankers said in a statement on Oct. 3 after talks in Istanbul.

“Pressure to cut jobs in the face of weak pricing power remained widespread, with job losses accelerating in Germany, Italy and France,” Chris Williamson, chief economist at Markit, said in the statement. “But we estimate that the monthly rate of job losses is now running at around 100,000, compared to a peak of 367,000 earlier in the year.”

Service industries in the U.S., the world’s largest economy, expanded in September for the first time in a year, data showed today. The Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90 percent of the American economy, rose to 50.9, higher than forecast, from 48.4 in August, according to Tempe, Arizona-based ISM.

European Stocks

European stocks rose after the purchasing managers’ data were published. The Dow Jones Stoxx 600 Index gained 0.6 percent to 235.45 at 3:30 p.m. in London. The euro traded at $1.4622 against the dollar, up 0.3 percent on the day.

The German economy, Europe’s biggest, probably expanded around 0.75 percent in the third quarter from the prior three- month period, when it grew 0.3 percent, Bundesbank President Axel Weber told reporters in Istanbul on Oct. 3. He said the recovery “continues to rely on support from fiscal and monetary policies, and that shouldn’t be withdrawn too quickly.”

The IMF also said central banks in Europe should keep interest rates low and possibly extend non-standard stimulus measures because the region’s recovery is likely to be “slow and fragile.”

The European Central Bank has held its benchmark rate at a record low of 1 percent since May and is flooding banks with cheap cash to ease credit constraints and revive growth.

The euro-area services index rose to 50.9 in September from 49.9 in the previous month, today’s report showed. While a gauge of manufacturing remained below 50, indicating contraction, it increased to 49.3, the highest since May 2008, data showed on Oct. 1.

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