BERLIN (Reuters) - German private sector growth slowed slightly more than expected in September, with a surprise surge in services activity not enough to offset a sharp slowdown in manufacturing, a survey showed on Friday.
Markit's flash composite Purchasing Managers' Index (PMI), which tracks the manufacturing and services sectors that together account for more than two-thirds of the economy, fell to 55.3 from 55.6 the previous month.
This undershot the consensus forecast in a Reuters poll of economists who had expected a slowdown to 55.4. Still, it was well above the 50 mark that separates growth from contraction.
Manufacturing growth slowed to reach its lowest level in more than two years, the survey showed, with the respective sub-index falling to 53.7 from 55.9. Analysts had expected a smaller drop to 55.7.
New export orders in manufacturing fell below the survey's crucial 50 mark for the first time since July 2015 and purchasing managers scaled back their expectations for future output.
"The service sector was left to do most of the heavy lifting in September, as manufacturing put in its worst overall performance since August 2016," said Phil Smith, Principal Economist at IHS Markit. "Manufacturing new orders, however, were broadly flat as export sales declined for the first time in more than three years."
Services business activity increased unexpectedly. Markit's sub-index for the sector rose to 56.5 from 55.0 in the previous month. This was much better than the forecast of analysts who had predicted a stable reading.
Services companies continued to hire staff at a pace not seen in nearly 11 years and their business expectations improved further, the survey showed.
"Falling backlogs of work in the manufacturing sector suggests that capacity may have finally caught up with demand, so there's a good chance the pace of factory job creation will lose momentum in coming months," Smith said.