Global PMI. Global economy grows at fastest rate for over two years, inflationary pressures rise. September 8 th 2017

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1 Global PMI Global economy grows at fastest rate for over two years, inflationary pressures rise September 8 th 2017

2 2 Global PMI records fastest growth for over two years Global economic growth rose to its highest for over two years in August, according to PMI data. The headline JPMorgan Global PMI, compiled by IHS Markit, rose from 53.6 in July to 53.9, its highest since April Historical comparisons suggest that the latest PMI indicates that global GDP (at market prices) is rising at a solid annual rate of just over 2.5%. Even more marked improvements were seen in order book and employment trends. Inflows of new business showed the largest rise for almost three years, and August saw one of the quickest increases in backlogs of uncompleted orders recorded over the past four years. Employment growth edged up to its best for over six years as companies expectations of future output levels also revived, with optimism approaching the recent high seen back in June. Global PMI* & economic growth Global employment and new business Sources: IHS Markit, JPMorgan. Sources: IHS Markit, JPMorgan.

3 3 Developed world sustains decade-high job creation Growth in the developed world edged higher to the fastest since April 2015, fuelled by stronger growth of both manufacturing and services. The first eight months of 2017 has seen consistently solid developed world growth, representing a marked improvement on the sluggish performance seen in much of Rich-world employment growth has likewise strengthened, reaching ten-year highs in July and August. Emerging markets growth also perked up, reviving from the recent lows seen in June and July. Improved performances were seen in both manufacturing and services, though in both cases growth remained below recent peaks seen earlier in the year. Employment meanwhile stagnated in the emerging world, though representing an improvement on the job market deterioration seen throughout much of last year. Developed v emerging market output Developed v emerging market employment Source: IHS Markit. Sources: IHS Markit.

4 4 Eurozone & US lead developed world upturn, Russia heads BRICs The developed markets saw a broad-based upturn among the major economies, though the eurozone led the pack for the seventh straight month. However, faster growth in the US (which saw the sharpest expansion of business activity since January) meant the gap closed further. Relatively weaker PMI readings were seen in both Japan and the UK, the latter seeing the second-worst performance for nearly a year. PMI data were more mixed in the emerging markets. Of the four BRICs, Russia reported the strongest improvement for the tenth successive month, followed by China. Brazil and India remained in contraction territory, albeit with the latter showing signs of stabilising and Brazil s downturn being only very modest. Major developed markets* Major emerging markets* Source: IHS Markit, CIPS, Nikkei. Sources: IHS Markit, Caixin, Nikkei.

5 5 Euro nations lead manufacturing upturn as global PMI hits six-year high The headline JPMorgan Manufacturing PMI, compiled by IHS Markit, rose in August to its highest since May Output growth perked up, albeit remaining below the highs seen earlier in the year, running at a pace broadly consistent with global factory production rising at an annual 5% rate. Eurozone nations led the rankings, while Asian countries and emerging markets lagged behind. However, only three countries South Korea, Thailand and Myanmar saw PMI readings in contraction territory. Sources: IHS Markit, JPMorgan, ISO, CIPS, NEVI, Nikkei, BME, Bank Austria, Investec, AERCE, Caixin, HPI, Thomson Reuters Datastream.

6 6 Pricing power improves as demand exceeds supply The strengthening of demand and the upturn in global growth has brought with it increased pricing power. Average prices charged for goods and services rose worldwide at the steepest rate since May 2011, with faster rates of inflation seen in both manufacturing and services. Input cost inflation meanwhile reaccelerated to its highest since April, reflecting a combination of higher energy prices, upward wage pressures and suppliers pushing price hikes through supply chains. The global manufacturing PMI survey data highlight how a lack of capacity (as indicated by longer supplier delivery times) is exerting upward pressure on prices. Average delivery times have lengthened to the greatest extent since May Global PMI price indices Global manufacturing price pressures Sources: IHS Markit, JPMorgan. Source: IHS Markit.

7 7 European supply chains see most severe stretch Supplier delivery delays were especially severe in eurozone nations, often leading to above-average price increases as suppliers gained negotiating power amid strong demand. Weak exchange rates also contributed to higher raw material costs in some countries, including euro nations and the UK. Sources: IHS Markit, JPMorgan, ISO, CIPS, NEVI, Nikkei, BME, Bank Austria, Investec, AERCE, Caixin, HPI, Thomson Reuters Datastream.

8 8 Eurozone PMI signals strong Q3 and buoyant hiring The latest survey data reveal how the summer months have seen eurozone growth moderate only slightly from the rapid pace seen in the spring. The headline IHS Markit Eurozone PMI held steady at 55.7 in August, setting the scene for another strong GDP number of 0.6%. With such robust growth being sustained into August, the region is on course to see GDP rise by 2.1% in 2017, which would represent the best performance since Although service sector growth eased in August to the lowest since January, manufacturing growth revived to one of the fastest seen over the past six years. Employment growth remained among the best seen over the past decade, suggesting eurozone unemployment will continue to edge lower, helping support consumer confidence and spending. Eurozone economic growth* Eurozone employment Sources: IHS Markit, Eurostat.

9 9 Broad-based eurozone upturn Similar robust rates of expansion were seen in all big-four euro nations, albeit with only Germany recording faster growth in August. Seven-month lows were seen in France and Spain. Q3 GDP growth of approximately 0.4-5% is being signaled for Germany, France and Italy, while Spain s PMI is running at a level historically consistent with growth of 0.7-8%.

10 10 US economy faring well but hurricane impact on Q3 GDP likely The August US PMI surveys registered the fastest rate of economic expansion for six months as businesses enjoyed a summer growth spurt. The strong survey data suggest the economy was picking up momentum before hurricane Harvey hit. While the pre-harvey data were pointing to Q3 GDP rising at an annualised rate of 3.5%, this could now be below 3.0%. Encouragingly, August saw companies optimism about the year ahead climbing to the highest since January. Any hurricanerelated impact is therefore likely to result in only be a temporary lull, with stronger growth returning later in the year. At 156k, official jobs growth disappointed in August as is often the case but the PMI surveys pointed to another month of c200k job gains, suggesting the official payroll count may get revised higher. US economic growth* US employment* Sources: IHS Markit, Commerce Department. Sources: IHS Markit, US Bureau of Labor Statistics. * PMI shown above is a GDP weighted average of the manufacturing and services indices.

11 11 US services take up slack from struggling manufacturers Divergent trends were seen by sector in the US. The US manufacturing PMI survey showed a renewed stuttering of the sector during August, registering one of the weakest improvements in the overall health of the sector seen over the past year. Export orders were once again the main area of weakness, linked in many cases to the historically strong dollar. The output index current reading in fact translates into a renewed weakening of official output data. Growth of services business activity, in contrast, accelerated to a 21-month high as inflows of new business showed the largest rise since July For Fed-watchers, an upturn in price pressures sent an additional hawkish signal. Average selling prices for goods and services rose at the steepest rate for nearly three years, suggesting another rate hike in December is looking likely. US manufacturing & services US manufacturing surveys Sources: IHS Markit. Sources: IHS Markit, ISM, US Commerce Department.

12 12 UK PMI points to sluggish Q3 growth despite manufacturing strength The pace of UK economic growth slipped to its lowest in six months in August, according to PMI survey data. An improved performance in the manufacturing sector failed to fully offset slower rates of expansion in services and construction. While manufacturing output growth hit a seven-month high, buoyed by rising exports, service sector activity showed the smallest monthly rise since September of last year. The rise in construction output was meanwhile the smallest seen over the past year, with commercial building work showing one of the steepest declines seen since the global financial crisis. The latest two months data put the economy on course for another 0.3% expansion in Q3, matching the rise seen in Q2, though with momentum being gradually lost into August. UK PMI* and GDP UK PMI output by sector Sources: IHS Markit, CIPS.

13 13 UK business optimism still subdued, surveys send dovish policy signal UK firms expectations about activity over the coming year picked up somewhat in August, boosting hiring to a 22-month high, often reflected expectations of further order book growth. The overall level of optimism nevertheless remained subdued by historical standards, again mainly linked to Brexit uncertainty, running close to levels that have previously been indicative of the economy stalling or even contracting. At 53.8, the current reading of the UK Composite Output PMI remains historically consistent with a slight easing bias as far as monetary policy is concerned. Since 1998 the Bank of England s Monetary Policy Committee has never hiked interest rates when the most recent all-sector PMI has been below 54.3 (with much higher thresholds needing to be breached in more recent years). UK PMI future expectations UK PMI* and Bank of England policy

14 14 Japan PMI points to further upturn in Q3 and rising prices The Japanese economy expanded further midway through Q3, but the pace of growth remained below the average seen in the first six months of the year. The Nikkei Japan PMI came in at 51.9 in August, up slightly from 51.8 in July. The rate of growth in new sales eased for a third straight month, reaching the joint weakest since November last year. The Future Output Index a gauge of business confidence sank to the lowest so far this year. Exports rose at an increased rate, yet well down on the pace of expansion seen earlier in the year. The survey nonetheless points to another solid expansion of the economy in Q3, albeit one slower than the 1.0% seen in Q2, and policymakers will be additionally encouraged to see the surveys gauge of selling price inflation for goods and services hitting the joint-highest in two years. Japan economic growth* Japan manufacturing exports Sources: IHS Markit, Nikkei, Japan Cabinet Office Sources: IHS Markit, Nikkei, Thomson Reuters Datastream.

15 15 China PMI upturn underscores better than expected 2017 growth China s economy kicked up to a higher gear in August, setting the stage for a stronger GDP expansion in Q3 after the 6.9% pace seen in Q2. The Caixin China Composite PMI rose to 52.4 (a six-month high) in August and picked up speed for a second consecutive month. Volumes of new business rose at the joint-strongest pace seen so far this year. The recent strength of China s performance has prompted a number of analysts, including IHS Markit, to upgrade their GDP forecasts for IHS Markit raised China s GDP projection from an annual rate of 6.6% to 6.8% for this year. Increased output failed to encourage firms to hire more, but a stagnation of overall employment at least represented an improvement on the declines seen in the prior four months. Service-sector hiring increased at the fastest rate since April. China PMI* & economic growth China employment Sources: IHS Markit, Caixin, NBS. Sources: IHS Markit, Caixin.

16 16 Russia leads BRICs but signs of steadying appear in India and Brazil A further fall in business activity was seen in India, according to the Nikkei PMI surveys, as business continued to be disrupted by the introduction of the new national sales tax. However, the decline was less steep than in July, hinting at signs of the economy starting to stabilise, with manufacturing even returning to growth. Growth ticked higher in Russia thanks to faster services growth, yet remained below recent peaks. Manufacturing was held back by falling exports. The data suggest the economy should grow again in Q3 after the 2.5% annual rise in Q2. IHS Markit currently forecasts 2017 GDP growth of 1.6%, supported by solid expansions in manufacturing and services. A modest upturn in the PMI for Brazil sent encouraging signals the economy will have stabilised in Q3 after a better-thanexpected start to the year (due mainly to improved agriculture). Growth was led by manufacturing but business optimism in the service sector also picked up, hitting the highest for a year, to add to signs that the economy is over the worst. Brazil PMI* v GDP Russia PMI* v GDP India PMI* v GDP Sources: IHS Markit, Nikkei, Datastream.

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