US Business Activity Increases in Early 2020

Friday, January 24, 2020

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Business activity in the U.S. improved in early 2020, contrasting with weaker economic performance in some of the world’s other major economies.

Data company IHS Markit said that its composite purchasing managers index for the U.S., a measure of activity in businesses, posted a 10-month high of 53.1 in January, up from 52.7 in December. A level above 50 points to growth in business activity, while a reading below that mark points to contraction.

IHS Markit said the pickup was due to growth in the services sector. Manufacturing PMI dipped to 51.7 in January, from 52.4 a month earlier.

The data “highlight a manufacturing sector that is not out of the woods yet, with goods producers seeing only modest gains in output and new orders,” said IHS Markit economist Sian Jones.

In Asia, Japan saw an uptick in business activity, according to a separate Markit survey, signaling a return to growth after a weak end to 2019.

By contrast, Europe’seconomy remained a global weak spot as 2020 got under way, with its services sector losing momentum while factories saw export orders begin to stabilize after a long and deep decline.

“The U.S. has been doing better than either of those economies for a long time and I expect that to continue,” said Stephen Stanley, chief economist at Amherst Pierpont.

Still, “as trade tensions ratchet down in 2020, not only will China and the U.S. economies do better but also those that are closely tied to trade” like Germany, he said.

IHS Markit’s surveys of purchasing managers at businesses around the eurozone pointed to continued weakness in activity during January, according to figures released. The composite purchasing managers index, a measure of activity in the manufacturing and services sectors, was unchanged at 50.9.

The currency area’s manufacturing sector continued to contract, but more slowly than in previous months, while new orders were only slightly down on the previous month.

In Europe, Germany has been hardest hit by the slowdown in overseas demand since the start of 2018, but the surveys indicated that new export orders fell only slightly in January, and less sharply than for 15 months. Its PMI rose to a five-month high, but other parts of the currency area were close to stagnation.

Speaking at the World Economic Forum’s meeting in Davos, Switzerland, German Finance Minister Olaf Scholz said recent developments would help underpin “a very stable economic development.”

“We are happy with the reduction in trade tensions,” he said. “It will have an effect on our export-oriented industries.”

The trade truce between the U.S. and China may help revive trade flows this year, but it isn’t known how much that will benefit Europe. Under the phase-one trade agreement, China has committed to buy an additional $200 billion in U.S. goods across 2020 and 2021. It may meet that target by cutting its purchases from other countries.

The outlook for trade with the U.S. is also uncertain. President Trump has threatened tariffs on imports of autos if the European Union doesn’t agree to a new deal that is more favorable to American exporters.

The ECB concluded that rising protectionism still threatened to slow the eurozone’s economy, making it unlikely it would soon consider a rise in its key interest rate.

A survey of Japanese purchasing managers carried a similar message to that from Germany, which is also one of the world’s leading exporters. The composite PMI rose to 51.1 from 48.6 in December. There were signs of a revival in export orders for manufactured goods, and the manufacturing PMI hit a five-month high.

In Davos, Bank of Japan Gov. Haruhiko Kuroda said he expected the economy to record another year of growth in the 1% to 1.5% range.

“Business investment has been quite robust,” he said. “We expect this strength will continue for some time.”

Source: Wall Street Journal

Category: Economic News, International Trade