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Global PMI signalled slight loss of growth momentum in
November, led by weaker service sector expansion
Business optimism surges to highest since early-2014 on vaccine
hopes
US and China lead upturn. Eurozone and UK slide back into
contraction
The global economic recovery hit a speed bump in November, as
rising COVID-19 infections led to a renewed slowing of business
activity. But the slowdown looks to be temporary, with business
sentiment about the year ahead jumping to its highest for over six
years, fuelled primarily by expectations of life starting to return
to normal in the coming year amid encouraging vaccine news.
The upturn was led by the US and China, where growth reached the
highest for over five and over ten years respectively, and which
also saw strong job gains. In contrast, the eurozone and UK slipped
back into contraction as tighter COVID-19 restrictions hit service
sector businesses and led to further job losses.
Global PMI signals slower expansion
The headline JPMorgan Global PMI™ (compiled by
IHS Markit) edged down from 53.3 in October, its highest since
August 2018, to 53.1 in November.
While the PMI has now indicated expanding business activity
levels for five successive months, reflecting a rebound in business
after the COVID-19 pandemic caused an unprecedented collapse in the
second quarter, the November data reveal a slight waning of the
pace of recovery.
Consumers act as drag on recovery
Although manufacturing output growth continued to accelerate
during the month, reaching the highest recorded since January 2018,
global service sector growth cooled from September's 18-month peak,
thereby falling further behind the pace of expansion seen in the
goods-producing sector. With the exception of the three months at
the height of the initial worldwide COVID-19 lockdowns between
March and May, the underperformance of services relative to
manufacturing was the largest recorded since early-2010.
Within the service sector, consumer-facing businesses once again
reported the worst performance as output fell for a tenth
successive month, with the rate of decline even picking up
slightly. In contrast, business and financial services companies
continued to report growth, with the latter again leading the
upturn despite seeing some cooling in the rate of increase.
Consumers also acted as the major drag on output growth in the
manufacturing sector. Although some improvement in the rate of
expansion of consumer goods production was reported, the sector was
the worst performing of the three main market groups. Producers of
investment goods such as plant and machinery reported the strongest
gains during the month, providing a welcome signal of reviving
capital spending on goods such as machinery and equipment.
The overall global rise in output of investment goods was the
strongest recorded since February2011, matched by a similarly
robust rise in new orders for such goods.
Producers of intermediate goods, which generally supply inputs
to other producers, also fared well, in part due to restocking.
Exports of services lead the downturn
The divergence between manufacturing and services widened
further when exports are considered. New export orders for
manufactured goods rose globally for a third successive month in
November, the rate of increase picking up slightly to return to
September's two-and-a-half-year high. In contrast, global exports
of services fell sharply again in November, reflecting falling
demand for travel and tourism services in particular.
New lockdown measures hit business
The slowing in the rate of global economic expansion came at a
time of renewed waves of virus infections in many countries, which
have in turn led to increased lockdowns and other precautions in
most cases, which have hit consumer-facing businesses the
hardest.
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 had eased from a
peak of 64 in April to 32 in September, but has since risen to 37
in November, indicating a renewed tightening of restrictions. Note
also that this represents a much harder degree of containment than
had been previously expected, reflecting the unanticipated strength
of second virus waves: back in June, governments' plans to open up
their economies had pointed to the containment index falling to
just 16 by November.
US and China lead the global expansion
Changes in degrees of COVID-19 containment varied by country,
which appears to have had a bearing on the PMI data.
Two economies with the lowest degrees of virus containment -
China and the US - reported the strongest rates of economic
expansion in November. The US saw an especially marked acceleration
in growth, with the composite PMI hitting a five-and-a-half year
high, coinciding with the COVID-19 containment index dropping
7-points to the lowest since the pandemic began. At just 12,
China's containment index is the lowest of all major economies,
with relatively loose restrictions helping push the rate of
expansion signalled by the Caixin PMI to the highest for ten and a
half years.
While both the US and China saw accelerating factory output
growth, they both also saw notable accelerations in service sector
growth rates, with China's service sector notching up the
second-strongest gain in over ten years and the US seeing the best
performance in over five years. The latter was achieved despite US
consumer service providers remaining in a downturn due to rising
infection rates.
While Japan also has a low degree of mandatory virus
restrictions, it's au Jibun Bank PMI remained subdued, likely
reflecting the relatively large role that travel and tourism plays
in the Japanese economy, its older demographic and the
underperformance of the Japanese economy seen prior to the
pandemic.
Eurozone and UK slide back into contraction
While the US and China saw strong and accelerating growth, the
eurozone slipped back into a substantial contraction, led by
sharply falling business activity in France, Spain and Italy. All
three countries saw tighter COVID-19 restrictions in November as
their governments sought to control second waves of infections.
Germany bucked the eurozone downturn, thanks to strong
manufacturing output growth offsetting a drop in service sector
activity, though even in Germany the overall rate of expansion
slowed markedly.
The UK also joined the eurozone in reporting a renewed fall in
business activity during November, likewise attributable to more
aggressive lockdown measures.
Optimism surges, especially in the US
Encouragingly, the COVID-19 Containment Index is expected to
show an easing of global restrictions in December, based on
previously announced government intentions for lockdown measures,
as virus numbers are again brought under control. This should help
reverse some of the negative pressures on business seen in
November. Furthermore, news of successful vaccine trials has
painted a brighter picture for the coming months and contributed to
a lifting of worldwide business expectations for the year ahead to
the highest since May 2014.
Manufacturing optimism hit the highest since February 2015 while
the service sector saw confidence hit the highest since March
2014.
The greatest improvement in sentiment was seen in the US, where
business optimism was also buoyed by reduced uncertainty following
the presidential elections and hopes of further state support in
the form of fiscal stimulus.
Optimism fuels hiring
The boost to confidence contributed to an increase in hiring.
Global employment rose in November to the greatest extent since
April 2019. November saw factory jobs stabilise for the first time
in a year, but it was the service sector where the job creation was
most widely reported. Service sector employment rose to the
greatest extent since February 2019.
The US led the increase in hiring, reporting the steepest
monthly increase in jobs since the IHS Markit survey began in 2009.
Net job gains were also reported in China, which saw the quickest
monthly increase since May 2010, as well as Brazil and - to a
lesser extent - Germany.
The UK reported the steepest drop in employment of the major
economies surveyed in November. Like Spain and Italy, the UK saw
job losses accelerate compared to October.
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.
