US, Eurozone manufacturing growth down in February; services up
Do the latest data from the Purchasing Managers’ Index give us clues about the much-anticipated global economic slowdown? The Flash Purchasing Managers’ survey for February, an early warning approximation of the final Purchasing Managers’ Index based on 85-90 per cent of survey responses, shows a wide divergence. Flash PMIs for the Triad economies (the US, Eurozone and Japan) show that the manufacturing sector is down in the dumps. But the much better performance of the larger service sectors has pulled up overall private sector output in the US and Europe.
The Flash Japan Manufacturing PMI for February was at a 32-month low and indicated contraction from the previous month. Joe Hayes, Economist at HIS Markit, said, “This comes as no surprise given the international challenges Japanese manufacturers are facing such as a China slowdown and the global trade cycle losing further steam.” The Flash Eurozone Manufacturing PMI came in at a 68-month low and also showed contraction from the previous month. Chris Williamson, Chief Business Economist at HIS Markit, said, “Solid domestic demand in many countries, notably Germany, continued to help support service sector growth and offset the downturn in the manufacturing sector.”
The US economy, however, is on a much stronger wicket. Although the Flash US Manufacturing PMI was at a 17-month low, at 53.7, it’s still pretty strong, although losing momentum. And the Flash US Services PMI was at an eight-month high, with the sharpest upturn in activity since June 2018.
Despite the slowdown in manufacturing, the private sector in the US showed strong growth. Tim Moore, Associate Director at HIS Markit, said, “February data provides a positive signal for Q1 economic growth, with US businesses reporting the fastest output expansion since the middle of 2018.”
While the manufacturing sector in the US showed no signs of inflation, the survey said that higher operating expenses and improving demand conditions contributed to another solid increase in average prices charged by service sector firms. That raises the question: was the Fed U-turn really needed or did it give in to a market tantrum?
In the Triad economies, the preliminary PMI data shows that it is the manufacturing sector that is pulling down growth. It’s very likely that this is the result of trade tensions. A trade deal between the US and China, therefore, may offset the current weakness and change the slowdown narrative.
