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Global PMI rises to 52.4 as growth accelerates in the UK, US,
China and Brazil
But eurozone growth is hampered by rising virus infection
worries
Only the US and China see firms building capacity for faster
growth in coming months
The worldwide PMI surveys indicated a further strengthening of
global economic growth in August as countries continued to recover
from coronavirus disease 2019 (COVID-19) lockdowns, with the
JPMorgan Global PMI hitting a near one-and-a-half year high of
52.4, but different countries showed varying degrees of resilience
in terms of their economies rebounding. Of concern, countries
seeing the sharpest escalation of COVID-19 infections saw renewed
downturns in business activity, and employment trends have worsened
in some countries despite stronger output growth.
UK leads global upturn
The strongest expansion among the largest developed and emerging
markets in August was recorded in the United
Kingdom, where the composite PMI hit a six-year high of
59.1 as growth accelerated in both manufacturing and service
sectors. Service sector growth was the sharpest since April 2015,
while factory production showed the largest gain since May
2014.
Russia saw the second-fastest rate of growth,
with a composite PMI reading of 57.3 indicating the quickest
monthly increase in activity since January 2017. The upturn was led
by an especially strong service sector performance, though
manufacturers also reported faster production growth.
Growth meanwhile accelerated again in China
after having lost a little momentum in July, with the composite
Caixin PMI output index climbing to 55.1. Although below June's
recent peak, the latest reading indicated the second-fastest
expansion seen over the past decade and the fourth successive
monthly improvement. Only the UK and Russia saw faster rates of
expansion. With China having locked down its economy earlier to
contain the virus, and reopening earlier, the sustained expansion
is encouraging for other countries. However, although manufacturing
output growth accelerated to the fastest since early 2011, in part
linked to renewed export sales, the service sector lost momentum
for a second successive month.
The United States also reported well-above
global average performance, with the IHS Markit composite PMI
climbing substantially to a 17-month high of 54.6 in August. The
improvement was led by resurgent service sector activity, which
showed one of the largest gains seen over the past two years, but
manufacturing also reported the strongest output growth since last
November.
Brazil was meanwhile notable in reporting a
return to growth for the first time since February, with a
composite PMI of 53.9 indicative of the fastest expansion since
January 2013. Although service sector companies languished in a
sixth month of contraction, manufacturers reported the largest jump
in production in the 14-year survey history as factories reopened
additional capacity.
Japan, India, Spain and Italy in decline
The upturn was by no means universal, however, with Japan, India
and some major parts of the eurozone most notably in decline.
Japan saw the steepest decline of the largest
developed and emerging economies, albeit with the rate of
contraction moderating for a fourth consecutive month. However,
both manufacturing and services remained firmly in decline, the
latter even seeing an increased rate of deterioration amid a
steepening loss of overseas revenues in particular.
India likewise continued to report sharply
falling business activity, albeit with manufacturing output
rebounding sharply. Although India's service sector downturn eased,
it remained steeper than any other major economy.
Trends were more mixed in the eurozone, which
expanded for a second successive month thanks to rising output in
both Germany and France. However, the eurozone PMI fell from 54.9
to 51.9 as upturns cooled in both France and Germany while Spain
and Italy sank back into contraction after brief revivals in July.
Manufacturing output continued to grow at a solid pace across the
region in August, thanks mainly to solid expansions in Germany and
Italy, but service sector growth almost stalled, led by downturns
in Italy and Spain.
COVID containment and growth
Growth in recent months can be tied to the degree to which
economies have been constrained by efforts to contain the COVID-19
virus. 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.
China, for example, has seen the smallest downturn in the year
to August and has also seen the lowest degree of containment.
India and Italy have meanwhile recorded the steepest downturns
and have registered the highest degrees of lockdowns.
The renewed weakening of economic performances in Italy and
Spain can meanwhile be linked to lockdown measures being tightened
in August.
There have been some outliers, however, notably with Japan
reporting a steeper rate of economic decline than lockdown measures
would have suggested. However, this is potentially explained by
higher degrees of voluntary social distancing in Japan, the
country's relative high exposure to global trade and travel and
tourism, as well as the lingering impact of last year's tax
hike.
The UK economy has meanwhile fared somewhat better than the
lockdown measures would have suggested, especially in August,
though there are some suggestions that its rebound may be short
lived.
Employment trends offer hints to outlooks
Other indicators provided deeper insights into future output
trends. Worryingly, new order growth slowed in China and the
eurozone in August, and the rate of decline accelerated in Japan,
all boding ill for output growth in September. More encouraging
were the signals from new orders in the US and UK, both of which
saw growth accelerate.
However, perhaps more importantly, of the expanding economies
only the US saw faster growth of backlogs of work in August. These
backlogs represent orders received by companies but not yet started
or completed, and hence provide a useful guide to capacity
utilisation. Rising backlogs hint that capacity will need to rise
further in coming months to meet demand. Falling backlogs suggest
firms may start cutting capacity. Hence the US, with its rising
backlogs of work, was also the only major economy to report a
robust increase in employment in August. China also saw backlogs
rise, but at a slower rate, and consequently reported only a
marginal gain in jobs.
Meanwhile, falling backlogs of work in the eurozone, UK and
Japan were accompanied by further job losses, with the rate of job
cutting even accelerating in the UK, so suggesting that companies
have grown more cautious with respect to the outlook.
Government policies have naturally affected employment trends in
many countries, employment may lag changes in output and cultural
differences in the flexibility of workforces play a part, but with
the UK's furlough scheme set to end in October, the worsening job
picture in the UK sends a particularly worrying picture for the
sustainability of the upturn, and highlights the danger of placing
too much emphasis on current output growth over other indicators.
It is also noteworthy that the US and China appear to be the only
economies to see firms building capacity for faster growth in
coming months.
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.
