Germany’s private sector also slowed this month, with service sector output shrinking but factories strengthening.
Markit’s flash German PMI report shows that service sector activity hit a three-month low, while manufacturing is growing at the fastest pace in over two years.
- Flash Germany PMI Composite Output Index at 53.7 (Aug: 54.4). 3-month low.
- Flash Germany Services PMI Activity Index at 49.1 (Aug: 52.5). 3-month low.
- Flash Germany Manufacturing Output Index at 62.2 (Aug: 57.7). 32-month high.
- Flash Germany Manufacturing PMI at 56.6 (Aug: 52.2). 26-month high
Phil Smith, Associate Director at IHS Markit, says the Covid-19 pandemic is hurting services companies:
With services business activity falling for the first time in three months, the recovery in the tertiary sector has possibly reached a ceiling thanks to ongoing social restrictions and still-high levels of uncertainty in the economy, including around job security.
In contrast, manufacturing is still rebounding strongly thanks to in part to improving export demand, with sharply rising levels of output and new orders helping to slow the rate of job losses in the sector.
French business activity suffers first decline since May
The first European PMI survey for September is in…and it’s not good.
French business activity has hit a four-month low this month, as renewed disruption related to the coronavirus disease 2019 (COVID-19) pandemic hit its economy.
Purchasing managers at service sector companies reported a notable slowdown in activity, following a jump in Covid-19 cases in France in recent weeks.
This dragged Markit’s preliminary French PMI down to 48.5 for September, from 51.6 in August, which shows that activity is falling [anything below 50 shows a contraction]. This is the first drop in four months.
The survey found that new work declined, while unemployment continued to rise.
Eliot Kerr, Economist at IHS Markit, explains:
“The sharp rise in COVID-19 cases recorded across France during September helped to explain the first fall in business activity since May. August data had already pointed to a slowdown in the recovery but now the path towards pre-coronavirus levels of activity has gone into reverse.
The rise in case numbers has been accompanied by fresh restrictions, but has also caused hesitancy among businesses due to fears of a second round of temporary business closures. “For now, at least, firms remain optimistic towards the year ahead outlook, but should the current trajectory of infection rates persist, that confidence is likely be tested in the coming months.”
The services sector PMI dived to 47.5 from 51.5 in August.
However, manufacturing has returned to growth – with the French factory PMI rising to to 50.9 from 49.8.
German consumer confidence stagnates
German consumer confidence remains weak, according to the latest data from the GfK institute.
GfK’s forward-looking gauge of consumer morale, released this morning, hit –1.6 points for October, barely an improvement on the slump to -1.7 seen in September.
That’s rather weaker than hoped (economists had forecast a rise to -0.6)
GfK reports that the Gernan consumers are more optimistic about economic and income prospects, but less likely to spend.
Rolf Bürkl, GfK consumer expert, says Berlin’s stimulus package is helping.
“Despite rising infection figures and the increasing fear of tighter restrictions caused by the pandemic, the consumer climate has stabilized. The extensive support packages for business and consumers are clearly suitable measures to help Germany emerge from the worst recession since the war,”
The further course of the infection rate in Germany and the situation in the labor market will decide whether the previous month’s downturn remains a flash in the pan and whether consumer mood is able to recover in the coming months.”
Carsten Brzeski of ING says that “German consumer confidence is stagnating”, and fears that economic demand could be weaker than hoped:
Up to now, retail sales and private consumption have experienced a strong rebound. The lifting of the lockdown measures and fiscal measures to sustain purchasing power are an important driver of the return of private consumption. Looking ahead, only a swift return of the labour market to pre-crisis levels would unleash potential pent-up demand.
However, given latest announcements of job shedding in the sectors hit most by the economic impact from lockdowns and social distancing and in sectors, in which Covid-19 is accelerating structural transitions, such a swift return looks increasingly unlikely.
Katharina Utermöhl of Allianz is similarly cautious:
Japan’s economy has suffered its eighth monthly contraction in a row, adding to anxiety over the recovery.
The au Jibun Bank Flash Japan Composite PMI, which tracks Japanese manufacturing and services, came in at 45.5 for September — still below the 50-point mark showing stagnation.
That suggests Japan’s economy is struggling, after plunging into its worst downturn in 40 years.
Companies reported that output, new orders, and export demand all continued to decline this month.
Introduction: US dollar climbs as recovery hopes knocked
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Hopes of a swift rebound from the Covid-19 pandemic have taken a knock this week, as cases continue to rise and the UK imposes new restrictions to fight the virus.
This has driven the US dollar to its highest level in two months today, as fears over the economic outlook push investors towards safer assets. That’s knocked sterling below $1.27 for the first time since late July.
After stock markets suffered their worst plunge since June on Monday, there’s an autumnal chill in the markets (and outside too).
Economists fear that Britain’s recovery will falter in the coming months, as pubs are forced to close early and millions of office workers continue to work from home.
Bank of America’s chief economist, Robert Wood, predicts growth will stall in the final quarter of 2020:
“We struggle to see how the economy can grow in the fourth quarter with escalating lockdown measures, fading stimulus and Brexit risks.”
Globally, Covid-19 cases are rising faster than ever before. Overnight, the World Health Organisation reported that the weekly number of new recorded infections worldwide hit its highest ever level last week, at nearly two million.
Kyle Rodda of IG says the US dollar’s rally this week shows the market appears to harbour greater doubt about the global economy’s recovery.
It seems to be a matter of degree rather than kind, but a couple of crucial variables are changing the prevailing narrative. One: fresh US fiscal support may not arrive before the US Presidential election. Two: Europe’s economic recovery is at risk from the latest wave of COVID-19 infections and lockdowns
The notion of a broad-based lift in global economic activity, that would crucially narrow the performance gap between the US economy versus that of the rest of the world, has been called into question. Not that such a thing can’t or won’t occur, but that instead, perhaps its timeline has been slightly pushed back.
This morning we discover how factories and service sector companies in the eurozone, and across the UK, are faring this month. The latest PMI surveys are expected to show that UK private sector growth is slowing, as the burst of activity over the summer fades.
America’s top central banker struck a cautious note when he began this week’s testimony to Congress. Fed chair Jerome Powell warned that the outlook for the US economy remains “highly uncertain”, despite recent improvements.
A full recovery is likely to come only when people are confident it is safe to re-engage in a broad range of activities
- 9am BST: Eurozone flash composite PMI: expected to drop to 51.7 from 51.9
- 9.30am BST: UK flash composite PMI: expected to drop to 56.3 from 59.1
- 2pm BST: US house price index for July
- 2.45pm BST: US flash composite PMI: expected to be unchanged at 53.1
- 3pm BST: Fed chair Jerome Powell testifies to Congress
- 3.30pm BST: US weekly oil inventory figures