Faltering Service Sector Weighs on Global Recovery as Infections Rise -- Update
September 23 2020 - 11:28AM
Dow Jones News
By Paul Hannon
The U.S. economy in September continued its steady recovery from
the sharp declines in the second quarter as demand and output
strengthened, according to new business surveys. But the pace
faltered in Europe and Asia, where new infections have led to new
restrictions on activity.
U.S. service-sector and manufacturing companies reported solid
growth in September, a positive signal for overall economic growth
in the third quarter.
Data firm IHS Markit said Wednesday its composite Purchasing
Managers Index for the U.S. -- a measure of activity in the private
sector -- was 54.4 in September, down slightly from 54.6 in August.
A reading above 50.0 indicates that activity is increasing, while a
reading below points to a decline in activity.
Growth in the services sector slowed slightly to 54.6 in
September from 55 in August, while in the manufacturing sector it
accelerated to 53.5 from 53.1.
The numbers suggest the U.S. economy continues its slow and
steady climb from the deep declines seen in the spring due to
lockdowns and other restrictions imposed to curb the spread of the
coronavirus.
"The question now turns to whether the economy's strong
performance can be sustained into the fourth quarter," said Chris
Williamson, chief business economist at IHS Markit.
Coronavirus infection rates remain high in the U.S., and
mounting uncertainty over the presidential election could further
tamp down business optimism, he said.
The recovery has been slower in other parts of the world.
Surveys of purchasing managers in France, Germany and Japan
pointed to a decline in activity at businesses that provide
services during September, an indication that the global economy
may struggle to return to pre-pandemic levels of output until a
vaccine becomes widely available.
The surveys indicate a faltering end to the third quarter, which
saw the recovery of much of the output lost to strict lockdowns.
The weakening of services activity comes as a number of European
countries, including the U.K., France, Spain and the Netherlands,
have tightened restrictions in response to accelerating infection
rates.
IHS Markit's PMI for the eurozone fell to 50.1 in September from
51.9 in August. While the PMI for the manufacturing sector rose to
53.7 from 51.7 to reach a 25-month high, the PMI for services fell
to 47.6 from 50.5, its lowest since May.
Within Europe, the contrast between Germany's export-reliant
manufacturers and France's domestic-facing service providers was
stark. Germany's PMI for manufacturing surged to 56.6 from 52.2 as
exports helped drive new orders to their largest monthly rise in a
decade. But in France, the services PMI plunged to 47.5 from 51.5,
as daily infections hit 10,000.
The divergence between the sectors was less pronounced in Japan
and Australia, but the former remained the weaker of the two.
According to purchasing managers, services activity continued to
decline in Japan, and stagnated in Australia.
Despite the setback for services in September, economists expect
the third quarter to see a strong rise in economic output, as
countries around the world regain much of the ground lost in the
three months through June. Last week, the Organization for Economic
Cooperation and Development lowered its estimate for the size of
the global economic contraction in 2020 to 4.5% from 6%.
Central bankers have taken a similar view but have warned that
the outlook very much depends on the course of the pandemic.
Earlier in September, European Central Bank President Christine
Lagarde sounded an upbeat note about the eurozone's progress but
noted that the services sector had begun to falter in August.
September's surveys of purchasing managers will likely heighten the
central bank's concerns, and make a further round of stimulus
before the end of this year more likely.
"The recovery is under more pressure than previously thought,"
said Bert Colijn, an ING Bank economist. "For governments and the
European Central Bank, this will be a wake-up call, if they needed
one."
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
September 23, 2020 11:13 ET (15:13 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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