Service sector

The strength of the services sector contributes to global growth

Business activity accelerated in some of the world’s largest economies as a recovery in the services sector offset weakness in the manufacturing sector caused by supply chain bottlenecks and rising prices.

Surveys of purchasing managers conducted over the past few weeks point to increased growth in the US, Japan and Australia as fears over the Delta variant of Covid-19 eased.

In Europe, however, growth slowed due to reduced factory activity as companies reported difficulties in sourcing the parts and raw materials they needed.

This combination likely means that the global economy will continue to recover in the final months of the year, but not at the pace seen in the second quarter, when reopenings led to a growth spurt.

Private data firm IHS Markit said on Friday its composite purchasing managers’ index for the United States hit a three-month high of 57.3 in October, from 55 in September. A reading above 50 indicates growth, while a level below 50 signals contraction.

In the Eurozone, the PMI index fell to a six-month low of 54.3 in October from 56.2 in September.

US growth was driven by the services sector, which hired at the fastest rate since June, according to the IHS survey. Businesses said they were struggling to meet increased demand due to supply chain safeguards and a shortage of available workers.

Manufacturing activity in the United States slowed in October, with companies reporting longer delivery times.

Gross domestic product figures to be released in the United States and Europe next week are expected to point to a slowdown in the three months to September. Economists polled by The Wall Street Journal expect the US economy to have grown at a seasonally-adjusted annual rate of 3.1% in the third quarter, down from 6.7% in the second quarter.

Earlier this week, China reported a sharp slowdown in growth in the third quarter, when the economy grew 4.9% from 7.9% in the previous three months, partly due to concerns over supply chain and energy shortages.

Input prices rose sharply due to supply issues, higher labor and shipping costs, and a shortage of raw materials. The U.S. consumer price index rose 5.4% in September from a year earlier, the Labor Department reported earlier this month.

“As the economy appears poised for stronger growth in the fourth quarter, rising inflationary pressures also show no signs of abating,” said Chris Williamson, chief economist at IHS Markit.

For European factories, delivery times for inputs have lengthened and their prices have risen at a record pace. The euro zone’s annual inflation rate hit a 13-year high in September and is expected to rise further before the end of the year. However, many economists continue to view the acceleration in price increases as a temporary problem that will be resolved when factories around the world have had time to increase capacity and meet strong consumer demand.

US growth is driven by the services sector, which has hired at the fastest rate since June, according to a new survey; a restaurant in San Francisco.


Photo:

David Paul Morris/Bloomberg News

The International Monetary Fund said on Wednesday that major European central banks should not rush to raise key interest rates to combat surging inflation.

“Our view is that monetary policies in most economies should remain very accommodative as employment has yet to reach pre-crisis levels and there are few signs that price increases will translate by widespread wage pressures,” said Alfred Kammer, director of the International Monetary Fund. European department.

Japanese and Australian companies are also reporting supply shortages and rising costs, but in both countries surveys of purchasing managers have indicated renewed growth as restrictions imposed earlier in the year have been lifted. relaxed. The composite PMI for Japan rose from 47.9 in September to 50.7 in October, indicating a return to growth.

“With virus cases having fallen significantly from record highs seen in August and the state of emergency in many prefectures lifted late last month, today’s Japanese flash PMIs for October throw the economy in a much stronger light than in recent months,” Daiwa Capital Markets economists wrote in a note to clients.

The Australian measure rose to 52.2 in October from 46.0 in September, also indicating a return to growth after restrictions were lifted.

China saw a sharp economic slowdown in the third quarter as its pandemic rebound fades – and now Beijing is tackling longer-term issues including household debt and energy consumption. WSJ’s Anna Hirtenstein explains what investors are looking at. Photo: Long Wei/Sipa Asia/Zuma Press

Write to Paul Hannon at paul.hannon@wsj.com and David Harrison at david.harrison@wsj.com

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