Positive Signals As Services Improve in Europe and the US

The global economy has been showing increasing weakness since early last year, as central banks kept raising interest rates to extraordinary levels, which has hurt the economy, together with surging prices. In Europe and other developed countries manufacturing and services fell in recession last year, and most analysts have been expecting a recession for quite some time, but it seems like it won’t happen, as economic indicators are showing improvement.

The Eurozone Manufacturing PMI rose to 43.8 points in November, compared to expectations of 43.4 points and above the 43.1 points recorded in October, reaching a six-month high. The bloc’s Services PMI rose to 48.2 0 points in November, from 47.8 in October, reaching a two-month high, while the PMI Composite improved to 47.1 pts in November vs. 46.9 estimated and October’s 46.5 figure. In the UK, services activity jumped above recession, which has been boosting the GBP this week.

The private sector in the United States continued to expand at a slow pace in early November, with the S&P Global Composite PMI remaining unchanged at 50.7. The Manufacturing PMI went into contraction territory, falling to 49.4 from 50.0 in the same period, while the Services PMI increased somewhat, rising to 50.8 from 50.6. In November, the US private sector remained in expansionary zone, as firms reported another slight increase in economic activity. Furthermore, demand conditions improved, owing mostly to the service sector, as new orders increased for the first time in four months.

S&P Global PMI Data for November 2023

• Flash Manufacturing PMI for November 49.4 points vs 49.8 estimate
• October manufacturing POMI was 50.0 points
• Flash Manufacturing PMI 49.4 points vs 49.8 estimate
• Flash services PMI 50.8 points vs 50.4 estimate ant 50.6 points last month
• Composite 50.7 points unchanged from last month’s 50.7 points.

From S&P Global:

The production of US firms increased marginally in November, matching the rate of rise seen in October. Activity increased slightly for both manufacturers and service providers. After three months of decline, total new orders increased, but demand conditions for manufacturers remained stable. Companies reduced their personnel for the first time since June 2020 as a result of lower demand and diminishing backlogs, hitting both service providers and goods producers. Input prices rose at the slowest rate in almost three years, easing cost pressures. Higher service sector output charges, on the other hand, contributed to an increase in overall selling price inflation, albeit manufacturers saw a slower rise in factory gate charges in November.

Commenting on the data, Siân Jones, Principal Economist at S&P Global Market Intelligence said:
“The US private sector remained in expansionary territory in November, as firms signalled another marginal rise in business activity. Moreover, demand conditions – largely driven by the service sector – improved as new orders returned to growth for the first time in four months. The upturn was historically subdued, however, amid challenges securing orders as customers remained concerned about global economic uncertainty, muted demand and high interest rates. Business uncertainty was also heightened among US firms, as expectations regarding the year-ahead outlook slipped to the weakest since July.

Businesses cut employment for the first time in almost three-and-a-half years in response to concerns about the outlook. Job shedding has spread beyond the manufacturing sector, as services firms signalled a renewed drop in staff in November as cost savings were sought. “On a more positive note, input price inflation softened again, with cost burdens rising at the slowest rate in over three years. The impact of hikes in oil prices appear to be dissipating in the manufacturing sector, where the rate of cost inflation slowed notably. Although ticking up slightly, selling price inflation remained subdued relative to the average over the last three years and was consistent with a rate of increase close to the Fed’s 2% target.”

ON EMPLOYMENT:

• In November, US companies saw a decline in employment, the first in nearly 3.5 years.
• The decrease affected both the service sector and manufacturers.
• Causes cited for layoffs included subdued demand, high-cost pressures, and hiring freezes due to margin concerns.
• Diminishing levels of unfinished business also contributed to the workforce reduction.
• Backlogs of work had been declining for seven consecutive months in the final quarter of 2023.
• Both goods producers and service providers experienced faster contractions in incomplete business, mainly due to reduced operating capacity pressure.

ON INFLATION:

• Margin pressures eased in the private sector.
• Companies raised selling prices more quickly.
• Cost inflation rate slowed for the second consecutive month.
• Input prices continued to rise but at the slowest pace since October 2020.
• Some firms noted lower energy and raw material costs.
• Workforce reduction also contributed to easing cost pressures.
• Manufacturers saw a notable slowdown in input price inflation.
• Service sector firms led a faster rise in overall selling prices in November.
• Manufacturers had the slowest increase in factory gate charges since August.
• The aim was to drive new sales and maintain competitiveness.