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IHS Markit's PMI surveys indicate that demand is switching from
goods to services, but regional divergences in consumer spending
remained marked in June - resulting in steep variations in
inflation trends.
Tourism & recreation leads global
economy
The global economy expanded rapidly again in June, according to
the JPMorgan Global PMI™ (compiled by IHS Markit). Although the
rate of expansion slowed slightly, the June gain rounded off the
strongest calendar quarter for 15 years and took the recent run of
growth into its twelfth consecutive month.
Drilling down, the fastest rate of growth was recorded in the
tourism & recreation sector. While this sector had suffered the
steepest drop in output during 2020 as many related activities were
shut down amid the pandemic, it is now enjoying the strongest
rebound of all sectors as these activities are opened up again.
The resurgence of business activity in the tourism &
recreation sector has in turn helped drive a 12-year PMI survey
record increase in global activity among the broader consumer
services industries during June.
With output of consumer goods growing at a slower rate globally
in June thanks to weaker new orders growth, the survey therefore
hints at demand switching from consumer goods to consumer
services.
However, there are clearly very different trends in consumer
activity by region, with the starkest differential evident between
the US and Asia.
Of the 26 sub-sectors covered by the IHS Markit Global PMI, the
fastest expansion was seen for tourism & recreation, reflecting
the opening up of these activities which had suffered the biggest
output loss in 2020 due to the pandemic. The upturn helped drive a
12-year survey record expansion of overall consumer services
output. Especially strong growth was also recorded for commercial
& professional services, telecom services and other industrial
services.
The fastest manufacturing expansion was recorded for machinery
& equipment, followed by tech equipment, in an encouraging sign
of rising global business investment expenditure.
The outperformance of the service sector throughout the second
quarter has coincided with COVID-related restrictions easing
globally on average to the lowest since the pandemic began, albeit
with marked variations by region.
US consumer surge contrasts with Asian
downturn
While the PMI survey index measuring new orders for consumer
services in the US recorded 64.9 in June, signalling the
second-strongest expansion in demand since comparable data were
first available in 2009 (and beaten only by the surge seen in May),
the equivalent index for Asia fell to 44.6, over 20 points below
that of the US and indicating a severe decline of a magnitude not
seen since May of last year.
These order book variations were matched by similar disparities
in output growth, with US consumer service providers ratcheting up
business activity levels at a record pace over the second quarter
to meet demand, while output fell across Asia.
Similarly, the PMIs gauge of new orders for consumer goods
registered a buoyant 62.4 in the US during June but fell to 50.6 -
indicating near-stagnation - across Asia. This near-stalling of
demand led to the first fall in Asian consumer goods production
since June 2020, contrasting with a further surge in US
production.
Europe plays catch-up with US
While slower vaccination progress, slower lockdown restriction
easings and less fiscal stimulus have meant Europe has also lagged
the US, recent months have seen the growth differential narrow
sharply.
US orders for consumer services started picking up back in
February, with growth the surging between March and June. In
Europe, it wasn't until May that demand for these services started
to recover, but since April the New Orders Index differential with
the US has narrowed from 23.6 to 4.1.
Similarly for consumer goods, the PMI New Orders Index for
Europe now lags that of the US by just 3.1 points compared to an
11.7 spread at the start of the year. Output growth has narrowed
even further.
US sees sharpest price rises
A corollary of the variations in demand has been a wide
discrepancy in price trends. Prices charged for consumer goods and
services in the US have been rising during the second quarter at a
rate unprecedented over the 12-year survey history, with service
sector prices in particular surpassing prior peaks by a wide
margin. In Asia, in contrast, prices charged for consumer services
were unchanged in June, and rose only modestly for goods.
However, European prices are now also spiking higher. Prices
charted for consumer services in Europe rose for a second month in
June, growing at the sharpest rate since October 2018 as recovering
demand generated increased pricing power. Prices charged for goods
rose at an even steeper pace, with the rate of inflation hitting an
all-time high as demand exceeded supply for many products.
Signs of peaking?
One encouraging sign from the US is that growth of demand for
consumer goods and services cooled in June from May's record peaks,
resulting in an easing of price pressures. It is too early to say
whether this represents the start of a downward trend in price
pressures as the rebound in demand from lockdowns fades. There is
also much uncertainty with respect to the impact of new supply
disruptions emanating from Asia, as well as questions over the role
that post-pandemic labour market participation rates will play in
shaping second-round inflation effects. But for now, the easing in
US price pressures is a welcome development.
Chris Williamson, Chief Business Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
