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With looser virus containment measures and fiscal stimulus, the
US is experiencing particularly strong service sector growth…
… contrasting with steep declines seen so far this year in
Europe and Japan
Early indicators of economic performance in February underscore
the impact of COVID-19 restrictions on different economies. While
some countries are benefitting from looser virus containment
measures, other countries that have taken additional measures to
control the pandemic so far this year are seeing falling levels of
service sector business activity, adding to international growth
differentials.
US and Australia see strong expansions
Flash PMI survey data showed US service sector business activity
rising especially sharply midway through the first quarter of 2021,
with the services activity index gaining from 58.3 in January to
58.9 in February, its highest since March 2015. The average so far
in 2021, at 58.6, puts the US on course for its strongest quarter
since the third quarter of 2014.
This gathering pace of momentum in the US service sector has
corresponded with additional fiscal stimulus, notably in the form
of extra cash dispersals to households, as well as a loosening of
COVID-19 containment measures: the IHS Markit COVID-19 Containment
Index* for the US has fallen ten points since December.
A similar picture of robust service sector growth is evident in
Australia, where the services business activity index remained well
above 50 (indicating expansion) in February, albeit dipping from
55.6 in January to 54.1. Despite the fall, at 54.9 the average
Australian services PMI reading for the first quarter so far is
only modestly lower than the average of 55.3 seen in the fourth
quarter of last year, which was the strongest since the second
quarter of 2017. The COVID-19 Containment Index for Australia
meanwhile fell further in February, and at 40 is well below the
global average of 46.
Japan and Europe hit by restrictions
It's been a different story in Europe and Japan, however, where
virus-related measures have been tightened so far this year.
In Japan, the COVID-19 Containment Index is running well below
the global average at 29 so far this year, but that's up from 20 in
December to indicate tightened restrictions. Experience over the
past year has also signalled that economic activity is far more
sensitive to the virus in Japan than elsewhere, possibly due to the
service sector's high dependence on travel and tourism. Hence the
services business activity index for Japan fell from 46.1 in
January to 45.8 in February, its lowest since last August. The
first quarter average so far of 46.0 indicates a steep drop in
services output.
Service sectors were also again hard hit from social distancing
measures in Europe. The service sector PMI for the Eurozone fell
from 45.4 in January to 44.7 in February, its lowest since November
and leaving the year to date average at just 45.1 - similar to the
fourth quarter's 45.0 during which GDP fell by 0.7%.
The indices for Germany and France fell to 45.9 and 43.6
respectively in February, taking year to date averages down to 46.3
and 45.4, indicative of severe contractions. Both France and
Germany have seen COVID-19 containment measures tighten
considerably since last October to fight further waves of virus
infections.
An even tighter degree of containment has been witnessed in the
UK, which has seen services activity fall to the greatest degree of
the economies covered by the flash PMIs so far this year. At 86 in
the first two months of 2021, the UK's containment index is
currently the highest in the world. Although the services activity
index for the UK rose to 49.7 in February to signal only a marginal
deterioration, January had seen the index plummet almost ten points
to 39.5, registering a particularly severe contraction as a third
national lockdown was instigated. The near stabilisation of
activity signalled by the February PMI merely points to activity
continuing to run at a much-reduced level compared to late last
year following the collapse seen in January.
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.
