The global economy continues to weaken, but not in a straight line as China rebounded somewhat, with Japan deteriorating further.
HSBC China Services PMI™ rebounded with the first increase in manufacturing in five months.
July’s survey findings showed business activity (covering manufacturing and services) in China rising at the join-fastest rate in nine months. This was signalled by the HSBC Composite Output Index posting 51.9, up from 50.6 in June. Overall growth reflected an increase in manufacturing production – the first in five months – and a stronger expansion of service sector output. The latter was highlighted by a rise in the HSBC Business Activity Index from 52.3 to 53.1.
Behind the latest rise in service sector activity was a sustained increase in new order volumes. However, the rate of new business growth remained below-trend. This, coupled with a slower rate of decline in new orders placed at goods producers, meant that overall new business rose marginally in July.
Sub-par new order growth meant that capacity was little tested in China’s service sector, with backlogs of work falling for a sixth month in a row. A marginal rise in work-in-hand (but not yet completed) at goods producers was recorded by July’s manufacturing survey.
Jobs growth in China’s service sector also remained below trend in July, despite picking up from the month before. In contrast, the index measuring trends in manufacturing employment fell to a 40-month low, signalling a moderate rate of job shedding.
Commenting on the China Services and Composite PMI™ data, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:
“The modest gain in July’s HSBC services and manufacturing PMIs implies that the slowdown of the Chinese economy is likely to have stabilized. That said, the pace of expansion suggested by the composite PMI remained only modest and is not sufficient to warrant a meaningful recovery. To secure growth and employment, Beijing still needs to step up policy easing and fast falling inflation allows them to do so.”
Japan Services PMI™
Moderate declines in activity across both manufacturing and services
Total new orders fall for first time in six months
Service sector optimism the second-highest in 37 months
Japanese service sector activity decreased further in July, and at the sharpest rate in ten months. The latest decline largely reflected a fall in incoming new business, which in turn contributed to another month of backlog depletion.
Manufacturing PMI™ data showed factory output falling at the fastest rate in 15 months. Consequently, the Composite Output Index (covering manufacturing and services) dipped from 49.1 to 47.4 in July, and indicated the steepest reduction in private sector activity since September 2011.
Behind the latest reduction in service sector activity was a decline in new business – the first since January. The rate of reduction in new orders was only modest, however, and weaker than the long-run series average. This, coupled with a stronger decline in manufacturing new orders, meant that private sector new work fell to the greatest extent in 13 months.
JPMorgan Global Manufacturing & Services PMI™
At 51.7 in July, the JPMorgan Global All-Industry Output Index – produced by JPMorgan and Markit in association with ISM and IFPSM – edged higher from June’s recovery low of 50.3, to signal a modest increase in output. The rate of growth was nonetheless one of the weakest seen during the current three-year period of expansion.
The headline reading masked the contrasting performances of the manufacturing and service sectors. Growth of service sector business activity accelerated slightly, mainly due to a sharp bounce in the rate of expansion in the US. In contrast, the downturn in the global manufacturing sector gathered pace, with output falling at the fastest pace in over three years.
Economic growth in the US rebounded sharply following the steep slowdown witnessed in June. China, India, Russia and Ireland also saw all-industry activity increase during the latest survey period. The euro area contracted for the sixth straight month, with output falling across the big-four Eurozone nations of Germany, France, Italy and Spain. Meanwhile, the UK reported a reduction in output for the first time since April 2009.
The more worrying trends were seen for new orders and employment, as consumer and business confidence remained subdued. The onset of a softer phase in global demand meant that inflows of new orders stagnated in July, as a slight increase in new business at service providers was insufficient to offset the sharpest decline in manufacturing new orders for three years. International trade flows also weakened, with new export orders suffering the steepest drop since April 2009.
Once again, new orders are the key to hiring and GDP growth. In spite of the uptick in China, global new export orders had the steepest drop since April 2009.
Mike “Mish” Shedlock
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