By Paul Hannon and Amara Omeokwe 

The U.S. economy continues to recover from the downturn caused by the coronavirus pandemic, according to business surveys that show services and manufacturing activity growing despite a rising number of infections.

The U.S. performance contrasts with surveys showing the European economy is set for a fresh contraction in the final quarter of 2020, as lockdowns aimed at containing the coronavirus have led to a sharp decline in activity in the dominant services sector.

Data firm IHS Markit said Monday its composite index of U.S. business activity, which covers both the services and manufacturing sectors, rose to 57.9 in November from 56.3 in October. The new reading, a preliminary estimate for this month, represented the strongest rate of growth for U.S. business activity since March 2015, IHS Markit said. A reading above 50.0 indicates that activity is increasing, while a reading below points to a decline in activity.

An increase in new orders helped drive the overall boost in activity for both services providers and manufacturers, while business confidence also improved, according to IHS Markit. Services firms expanded their workforces in November to keep up with stronger demand, although manufacturing job creation slowed, the surveys showed.

The data were compiled between Nov. 12 and 20, and offered a look at how U.S. services and manufacturing firms were faring right after the presidential election amid reports of progress from several companies working to develop a coronavirus vaccine.

"Expectations about the year ahead have surged to the most optimistic for over six years, reflecting the combination of a postelection lift to confidence and encouraging news that vaccines may allow a return to more normal business conditions in the not too distant future," said Chris Williamson, IHS Markit's chief business economist.

Still, a surge in Covid-19 cases in the U.S. poses a fresh challenge for the economic recovery. Job-market growth has shown signs of slowing and some states and localities have reinstated restrictions aimed at combating the virus's spread.

In Europe, new lockdowns mostly came into force in the final week of October. Although narrower than those introduced in the spring, the new measures appear to have hit services that require close physical proximity almost as hard, while having less effect on most other activities. In Europe, the service sector represents about three-quarters of overall economic activity.

Manufacturing activity continues to be much less negatively affected than earlier in the year, but the decline in services appears sufficiently large to cause a drop in gross domestic product. If that materializes, the eurozone will be further from returning to the levels of output seen before the pandemic struck in the first quarter.

Data firm IHS Markit said its composite Purchasing Managers Index for the eurozone fell to 45.1 in November from 50.0 in October, reaching its lowest level since May. The PMI for the services sector fell to 41.3 from 46.9 in November, pointing to an even larger decline in activity than in October. By contrast, the PMI for the manufacturing sector continued to point to an increase in activity, albeit at a slower pace. Similar surveys for the U.S. to be released later Monday are expected to point to continued growth in both sectors.

"The fall in the PMIs was far less severe than during the spring lockdown, supporting our view that the hit to activity will be much smaller," said Rosie Colthorpe, an economist at Oxford Economics, which expects the eurozone economy to shrink by 2.6% during the fourth quarter.

In the second quarter, eurozone GDP declined by 11.8%, and it rebounded by 12.6% in the third quarter.

Faced with a new lockdown, European service providers cut jobs at a faster rate than in the previous month, according to the survey of purchasing managers, while the decline in manufacturing employment was less sharp. Overall, employment fell for the ninth straight month.

The divergent fortunes of the services and manufacturing sectors were evident in the performances of the eurozone's two largest economies. The French economy relies quite heavily on consumer services and saw a sharp decline in activity during November. Germany is more dependent on manufacturing goods for export, and its economy continued to expand.

A survey of U.K. purchasing managers pointed to a similar decline in activity, again concentrated in the services sector following a national lockdown that came into effect on Nov. 5.

The outlook for Europe's economy over the coming months will depend on whether the new lockdowns succeed in lowering infections to the point where restrictions can be eased again. Most are scheduled to end over the coming weeks, with the aim of reopening economies in time for the key Christmas period, although some restrictions are likely to remain.

However, IHS Markit reported that businesses had grown more upbeat about their prospects during November, as developers of vaccines designed to inoculate against the coronavirus reported higher-than-expected levels of effectiveness in the final phases of testing.

"Firms across both manufacturing and services have also become more optimistic about the year ahead, largely reflecting growing hopes that the recent encouraging news on vaccines will allow life to return to normal in the new year," Mr. Williamson, of IHS Markit, said.

Write to Paul Hannon at paul.hannon@wsj.com and Amara Omeokwe at amara.omeokwe@wsj.com

(END) Dow Jones Newswires

November 23, 2020 11:49 ET (16:49 GMT)

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