Spanish services sector enjoys return to growth for first time in 26 months

Spain's services sector expanded for the first time in over two years, providing further anecdotal evidence that the economy is poised to emerge from nine quarters in recession, albeit with insufficient growth to significantly bring down rampant unemployment.

Consultant Markit said Wednesday that its Purchasing Managers' Index (PMI) for the services sector rose from 48.5 points in July to 50.4 points in August, the first time it has moved above the 50-point mark that indicates no change in the level of business activity since June 2011.

On Monday the consultant had reported that its survey of the manufacturing sector showed output in Spain expanding for the first time in over two years in August, driven by the strength of exports. However, in the case of both manufacturing and services, companies continued to cut back on employment.

In the case of services, Markit said despite the increase in activity, those surveyed indicated that the pace of job cuts in fact accelerated in August from July. "Panelists reported a reluctance to take on extra staff given the fragility of economic conditions in Spain," the consultant said.

Companies are reluctant to hire while solid growth remains elusive"

Jobless claims in August fell for the first time since 2000 but by only 31. Despite the fact that the figure has fallen for six straight months, a significant part of that hiring was for temporary staff to cover the summer holiday period. Over 37 percent of the contracts awarded since the start of this year were only part-time, a mode of hiring that has been facilitated by the reforms to the labor market introduced in February of last year.

According to the National Statistics Institute's Active Population Survey, the jobless rate at the end of June stood at 26.3 percent, with just under six million people out of a job.

The services sector in August was boosted by new orders, which rose for the first time in 25 months. Although overall outstanding orders continued to fall, the pace of the decline has now slowed for six months in a row and is at its weakest since June 2011.

"Coming on the back of a return to growth of manufacturing output, as highlighted by the manufacturing PMI last week, this rise in services activity reinforces the view that Spain will exit technical recession in the third quarter of 2013," said Markit economist Andrew Harker.

This is the view also taken by the government. After the release of the August jobless figures on Tuesday, Economy Minister Luis de Guindos said the figures pointed to a scenario of a return to growth later this year after the economy bottomed out in the second quarter when GDP declined only 0.1 percent on a quarterly basis. But the administration of Prime Minister Mariano Rajoy is not expecting the pace of activity to be strong enough to bring the jobless rate below 25 percent before 2015.

"Companies are reluctant to hire workers while solid, sustainable growth remains elusive and the outlook is still an uncertain one," Markit's Harker said.