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Global PMI signals further growth of manufacturing and services
output but rate of expansion eases
Employment returns to growth amid rising orders
Outlook dampened by COVID-19 worries
The worldwide PMI surveys indicated a further month of solid
economic growth in September, with rising demand generating a
return of jobs growth globally. New inflows of business rose at the
joint-fastest rate since 2018 and a net increase in jobs was
reported for the first time since January. However, the overall
pace of output growth edged lower while business sentiment about
the outlook slipped for a second month amid growing worries of
further waves of coronavirus disease 2019 (COVID-19) infections.
With tighter than previously expected virus containment measures
likely to dampen global economic growth in the fourth quarter, GDP
growth looks to have peaked in the third quarter.
Global PMI shows a further rise in activity
The headline JPMorgan Global PMI™ (compiled by IHS Markit) fell
for the first time in five months in September, dipping from 52.4
in August to 52.1, but remained in positive territory to merely
indicate an easing in the rate of expansion. Moreover, inflows of
new business accelerated during the month to hint strongly that the
slowdown may prove temporary, likely constrained by capacity and
supply chain issues. New orders grew at the steepest rate since
January, while backlogs of work showed the largest rise since
2018.
We use a linear regression to estimate the annual growth rate of
GDP implied by the PMI. This model indicates that the annual rate
of decline likely peaked at approximately -12% back in April at the
height of worldwide COVID-19 related lockdowns, but that the
relaxation of virus restrictions has since helped drive an
improvement to an approximate 2.5% rate of growth in August and
September.
Note that this does not indicate that the economy is now larger
than a year ago, merely that the rate of growth on an annual basis
has improved to around 2.5%, which still represents a very modest
rate of expansion relative to the collapse seen at the height of
the pandemic.
Manufacturing leads the upturn
Manufacturing led the expansion, with the rate of output growth
dipping marginally during September but nonetheless signalling the
second-fastest upturn for over two years. Growth also slowed in the
service sector from August's seven-month high, lagging behind
manufacturing due mainly to the greater hit to many types of
services activity from ongoing virus-related social distancing
measures.
More encouragingly, inflows of new business continued to
accelerate in both manufacturing and services, reaching 29- and
eight-month highs respectively, suggesting that the recovery in
demand for goods and services continued to gain momentum at the end
of the third quarter.
A key development driving growth in the factory sector was a
revival of global goods trade, with manufactured exports rising in
September at the fastest rate since March 2018. In contrast,
exports of services - a significant portion of which is accounted
for by travel and tourism - continued to decline at a marked pace,
the rate of decline even re-accelerating slightly amid reports of
increased travel restrictions (albeit falling at a much less severe
rate than seen at the height of the pandemic in the second
quarter).
Employment rises for first time since
January
The sustained growth of global output and the rise in new work
placed at firms in September was accompanied by the first net
increase in employment worldwide since January.
Jobs growth was seen in the service sector for a second month
running while manufacturing jobs continued to be cut, albeit at the
slowest rate since January. However, it should be noted that
services also saw a steeper rate of job shedding during the height
of the pandemic than the manufacturing sector.
Can strong growth be sustained?
The survey data therefore add to evidence that the global
economy rebounded sharply in the third quarter after business
activity and GDP collapsed at an unprecedented rate in the second
quarter. Furthermore, the expansion remained solid as the quarter
progressed through to September.
The focus now turns to whether this robust expansion can be
sustained into the fourth quarter. To this end, a note of caution
is provided by the PMI's future business expectations index, which
is based on the only subjective question asked of the survey
contributors, asking how companies expect their own output level to
change over the coming year. This gauge hit a low in April before
rising strongly in May and June, with a further modest gain seen in
July. Since then, however, the future expectations index has lost
some ground, albeit remaining elevated by standards seen over the
past two years.
The dip in confidence over the past two months nevertheless
reflects growing worries among companies about rising COVID-19
infection rates and whether governments and central banks can
deploy (or maintain) sufficient stimulus to sustain strong growth
and protect labour markets.
Not surprisingly, the principal area of renewed weakness in
terms of future optimism is being seen in the service sector.
Virus containment measures dampen recovery
hopes
The renewed worries about the impact of the pandemic on business
have been accompanied by rising, or stubbornly high, COVID-19
infection numbers in many countries, which are in turn being
accompanied by increased pressure on governments to reintroduce
further social distancing measures or even new lockdowns.
The global PMI had collapsed to an all-time low of 26.2 in April
as governments around the world took increasingly drastic measures
to contain the spread of the COVID-19 virus, including the closure
of non-essential businesses and schools and severely restricting
movement and travel. Between May and August the PMI rose markedly
as these containment measures have been eased on average
globally.
However, September saw barely any overall easing in Covid-19
containment measures, and both August and September have in fact
seen containment ease to a far lesser extent than had previously
been expected, based on government roadmaps for opening up their
economies, due to 'second waves' of rising infection numbers in
many countries.
The degree to which economies have 'locked down' in the fight
against the pandemic can be gauged by IHS Markit's COVID-19
Containment Index. This gauge is based on a basket of measures
applied by governments to control the spread of the pandemic, such
as non-essential business closures, school closures and travel and
mobility restrictions linked to social distancing policies. As
these measures are tightened, the index rises towards 100 and a
relaxation of measures causes the index to fall towards zero.
The global average COVID-19 Containment Index has eased from a
peak of 64 in April to 35 in August and 34 in September. However,
back in June, government plans to open up their economies had
pointed to the containment index falling to just 22 by September.
In other words, tighter containment measures have had to be applied
for longer than had been previously been expected globally.
What's more, the path to further opening up economies is now
gloomier than had been expected back in the summer. Given
governments' notified plans for future virus containment measures,
the Global COVID-19 Containment Index is now expected to still be
stuck at 23 by December instead of a reading of 12 that had been
anticipated back in the summer, again reflecting rising infection
numbers.
These tighter than previously expected virus restrictions are
inevitably going to further impact growth, especially in
face-to-face service sectors. If lockdown pressures intensify
further, the risk of the impact spreading to other sectors such as
manufacturing rises.
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.
