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Flash PMI™ survey data for September are historically
consistent with global GDP of 2.2% on an annual basis, slightly
weaker than August
UK leads the upturn but US sees strongest gains in employment
and backlogs of work
IHS Markit's flash PMI surveys for the 'G4' developed economies
indicated that the pace of economic growth slowed at the end of the
third quarter as the COVID-19 pandemic continued to cause
widespread economic disruption.
While the data add to evidence that the global economy rebounded
sharply in the third quarter after the unprecedented collapse seen
in the second quarter, at the height of the COVID-19 pandemic, the
latest numbers also hint at the global economic rebound losing some
momentum.
Global economy seeing slower recovery
Flash PMI surveys for the four largest developed economies (the
US, Eurozone, Japan and UK), which collectively account for
approximately half of global GDP, indicated further growth in
September, but also signalled that the expansion lost some of its
momentum. The G4 economies' flash PMI output index* fell from 52.6
in August to 51.6 in September.
Note that the decline in the index merely points to an easing in
the rate of expansion rather than a contraction. The historical
relationship of the flash PMI with global GDP suggests that the
latest reading is broadly consistent with the global economy
growing at an annual rate of 2.2%, down from a signal of 2.6%
growth in August.
Note also that this does not mean GDP was 2.2% higher than a
year ago in September, but merely indicates that the global economy
is expanding at a rate equivalent to 2.2% per annum. At such a
modest pace, it would take many months, if not years, to recoup the
huge loss of output that occurred during the height of the
pandemic, when lockdowns in many countries led to record low PMI
readings.
The peak of the rate of decline appeared in April 2020,
coinciding with strict lockdowns and enforced closures of
non-essential businesses across many countries. Since July,
however, rising output has been recorded in the G4 economies, and
in the wider global economy, as the lockdowns have eased, though
the September flash data reflected a pull-back in business activity
in many sectors as COVID-19 restrictions were either not relaxed
(as had been previously planned) or tightened in the face of second
waves of virus infections.
Economies have been re-opened at a slower than
previously expected rate
IHS Markit's Global COVID-19 Containment Index (which takes a
weighted basket of restriction measures in each country to gauge
the degree of 'lockdown') has fallen less than previously expected
in August and September, reflecting a slower than previously
planned re-opening of economies. For example, the index (for which
readings of 100 signal full virus-fighting lockdowns and zero
indicates no restrictions), has fallen markedly from a peak of 64
back in April, but at 32 in September is far higher than the level
of 21 that had been expected for September based on government's
plans to reopen their economies back in June.
The reopening of economies has been especially slower than
previously anticipated in all G4 economies, as rising infection
rates have derailed the loosening of restrictions on social
mobility and mixing. In all cases, containment measures are
expected to at least remain stable through to the end of the year,
but many governments continue to report that further containment
may be necessary if infection rates rise.
Slowdown most evident in services
Given the ongoing measures to contain COVID-19, it was no
surprise to see the slowdown most evident in services, and
especially in consumer-facing companies, where the rate of
expansion across the G4 economies fell below rates seen in July and
August to slip below that recorded for manufacturing. The latter in
fact saw output growth accelerate to the fastest snice October
2018, reflecting a combination of rising higher street demand for
goods, growing trade and rising investment spending.
Europe leads developed world upturn
Given the broad-based extent of ongoing COVID-19 restrictions,
it was not surprising to see growth rates across all G4 economies
moderated in September with the exception of japan, where the
economy remained in decline for an eighth successive month. At 45.4
in September, the
au Jibun Bank composite PMI for Japan was nevertheless at its
highest since February, suggesting a further easing in the rate of
decline, though still indicating a continued economic contraction
in the third quarter. Japan saw the worst performance of both
manufacturing and services among the G4 economies.
The
eurozone also fared especially badly, with the composite PMI
sliding to 50.1 to indicate a stalling of the region's economic
rebound from the collapse seen earlier in the year. The service
sector fell back into decline, contracting in Germany, France and
the rest of the region as a whole, offsetting improved
manufacturing performance, which saw factory output rise at the
steepest pace since February 2018, with especially strong growth
seen in Germany.
Growth also
slowed markedly in the UK, albeit with August having seen the
strongest expansion for over six years. The slowdown was most
evident in the service sector, in part due to the halting of the
government's scheme to heavily discount meals eaten in bars and
restaurants. Despite the slowdown, the UK nevertheless reported the
strongest manufacturing and service sector expansions among the G4
(although, within the eurozone, Germany reported a stronger
manufacturing expansion).
US growth remained relatively resilient, slowing only slightly
from August to indicate a further solid expansion, though below
that seen in the UK. As with the UK and Eurozone, the slowdown was
driven by the services economy, where growth eased from the near
one-and-a-half year high seen in August, while manufacturing output
growth edged up to the highest in ten months.
Job market stabilises, led by US hiring
In gaining further insight into the strength and likely
sustainability of the recoveries, it is also important to look at
other survey indices as well as output. In particular, we look at
employment and backlogs of work, the latter providing a useful
guide to the extent to which companies are struggling (or not) with
recent changes in demand.
Encouragingly, employment rose marginally across the G4
economies as a whole for a second month running in September,
contrasting with the steep loss of jobs seen between March and
July. This stabilisation of the workforce coincided with a
steadying of backlogs of work during the month. In prior months,
backlogs had fallen as firms often kept current operating capacity
fully utilised only by eating into previously placed work.
Again, however, divergences were important to note within the G4
economies. Rising employment was only evident in the US, which was
also the only major economy to see backlogs of work increase to any
significant extent. These gains hint that the US upturn appears to
have longer legs than other G4 economies.
While the UK has seen the strongest output growth, concerns are
raised by a further steep loss of jobs during September, as
companies reported the need to scale back capacity and overheads. A
steadying of backlogs of work in the UK bodes well for job losses
to hopefully moderate in coming months, though much will depend on
whether the government halts its furlough scheme as planned at the
end of October.
Firms in Japan and the eurozone meanwhile saw backlogs of work
and employment continue to fall, but rates of decline eased. As
with the UK, these data hint that the worst of the job losses could
be behind us, but much will naturally depend on the path of the
virus in each country and the response in terms of virus
containment measures and monetary and fiscal policy. In the US, the
upcoming elections add an additional uncertainty to the outlook,
while in the UK, Brexit poses an additional downside risk.
* The IHS Markit Flash PMIs are early releases of survey data
based on around 80% of the total number of replies usually received
during a month. As such, they provide the first, internationally
comparable, insights into how economic conditions are changing.
Currently, flash PMI are produced for the United States, the
eurozone, Japan, the United Kingdom and Australia, encompassing
manufacturing and service sector business conditions in each
economy. These survey data can in turn be weighted together
according to each country's GDP to form international aggregates.
Weighting the US, eurozone, UK and Japan PMIs together, for
example, creates a "G4 developed world" series of indicators,
covering output, new orders, employment, inflation etc.
Because these four largest developed economies account for
approximately half of global GDP (at market prices), the G4 flash
PMI output index acts as both a good indicator of the Global PMI as
well as global GDP growth. Since 2007, when IHS Markit's US PMI
series were first included in the global PMI database, the flash
PMI has exhibited a 94% correlation with annual percent changes in
global GDP with the PMI acting with a lead of one quarter.
Chris Williamson, Chief Business Economist, IHS
Markit
Tel: +44 207 260 2329
chris.williamson@ihsmarkit.com
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.
