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Japan, France and Spain bucked a wider global recovery trend in
September, the latter two slipping back into decline amid rising
Covid-19 infections
The UK has reported the sharpest rise in output of the largest
economies around the world, but has also seen the steepest cut to
jobs
The JPMorgan Global PMI™ (compiled by IHS
Markit) continued to indicate a robust expansion of the global
economy in September, but national variations in economic
performance remained marked, often due to varied service sector
performances arising from coronavirus disease 2019 (COVID-19)
restrictions. Employment trends have also varied markedly, likely
due to policy differences, meaning the outlook for jobs has
deteriorated in Europe and in particular the UK.
UK leads global rankings
Of the largest developed and emerging economies, the UK reported
the strongest expansion of business activity in September, albeit
with growth moderating from August's six-year high, followed by
Germany.
India and China also reported robust expansions, with the former
fueled by the steepest rise in manufacturing activity recorded by
any country in September, though service sector activity continued
to slump. In contrast, China's growth was broad-based across
manufacturing and services. The US, Russia and Brazil all also
reported above global-average performances.
The strongest downturn was seen in Spain, followed by Japan and
then France. Spain has only managed to record one month of growth
since February, according to the PMI, with a renewed and
accelerating downturn evident in both August and September, led by
a steepening drop in service sector activity. France meanwhile fell
into decline for the first time in four months, as rising factory
output growth was countered by a renewed fall in service sector
activity.
Japan has meanwhile failed to register any growth since the
economy stabilised in January, although the downturn has moderated
over the past four months.
Over the year to date, China has reported by far the smallest
deterioration in business activity on average, followed by the US,
while India has reported the steepest downturn, followed by Italy
and Japan.
Service sector trends more varied than
manufacturing
Manufacturing output rose in all of the 11 largest national
economies covered by the PMI surveys with the sole exception of
Japan, highlighting how the recovery is being driven by the
goods-producing sector and a revival in global goods trade
flows.
It was a different story in the service sector, however, where
five of the 11 countries contracted, albeit with India only
reporting a marginal decline. The UK reported the strongest service
sector gain, followed by China and the US, while Spain saw the
steepest deterioration.
Falling services activity in Spain, France and (to a lesser
extent) Italy was often linked to worries of rising virus case
numbers and increased precautions being either implemented or
adopted voluntarily to prevent further infections.
Only the US and China report rising
employment
A curious development has occurred in the labour market. Whereas
the UK reported by far the strongest output gain in September, it
also reported the sharpest drop in employment. It has also seen the
steepest loss of jobs so far this year of the 11 largest countries
covered by the PMI.
Only the US and China reported any growth of jobs in September,
with both recording gains across both manufacturing and services
during the month. The US reported by far the largest overall
increase, though had also reported a far steeper loss of jobs than
China at the height of the pandemic. Over the year to date, only
Japan has reported a smaller loss of jobs than China.
UK looks set to see largest rise in
joblessness
The PMI employment data in fact show a different trend to
official jobless rates. In particular, while the PMI has shown job
losses to have been greater in the UK and eurozone than the US so
far this year, even at the height of the pandemic, the official
data suggest the opposite.
While the jobless rate spiked higher in the US at the height of
the pandemic, hitting 14.7% in April as employers quickly cut
payroll numbers, official unemployment rates have remained
relatively low in Europe. The latest numbers from the UK and
Germany put unemployment rates at just 4.1% and 6.3%
respectively.
These divergences in unemployment rates possibly reflect
differences in the flexibility of labour markets, but more likely
reflect differences in the nature of labour maket support from
governments. In particular, while US measures have been directed at
boosting the incomes of those that have become unemployed (with the
exception of the Paycheck Protection Plan, aimed at smaller firms),
European measures have been targeted at keeping employees on the
payroll.
This raises the question of the extent to which redundancies
will rise when support measures are withdrawn, especially in Europe
and in particular in the UK, particularly if this support is
removed at a time of ongoing COVID-19 containment. The PMI data
suggest the UK has possibly been the most obvious case of employers
having not reported redundancies yet due to the receipt of furlough
support.
Official unemployment rates will therefore likely rise higher in
western Europe as we head into early 2021, especially in the UK,
where the widely-used furlough scheme (adopted especially heavily
in the service sector) is replaced at the end of the October with a
less supportive subsidy designed to encourage the retention of
staff on a part time basis.
The PMI data also add to our expectations that joblessness
peaked in the US and Canada in the second quarter of 2020, albeit
with the labour market recoveries likely to continue to lose
momentum in coming months as the principal rebound fades. Jobless
rates will soon likely peak in emerging markets such as China,
India, Brazil and Russia.
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.
