By Paul Hannon and Amara Omeokwe
The U.S. economy continues to recover from the downturn caused
by the coronavirus pandemic, according to business surveys that
show services and manufacturing activity growing despite a rising
number of infections.
The U.S. performance contrasts with surveys showing the European
economy is set for a fresh contraction in the final quarter of
2020, as lockdowns aimed at containing the coronavirus have led to
a sharp decline in activity in the dominant services sector.
Data firm IHS Markit said Monday its composite index of U.S.
business activity, which covers both the services and manufacturing
sectors, rose to 57.9 in November from 56.3 in October. The new
reading, a preliminary estimate for this month, represented the
strongest rate of growth for U.S. business activity since March
2015, IHS Markit said. A reading above 50.0 indicates that activity
is increasing, while a reading below points to a decline in
activity.
An increase in new orders helped drive the overall boost in
activity for both services providers and manufacturers, while
business confidence also improved, according to IHS Markit.
Services firms expanded their workforces in November to keep up
with stronger demand, although manufacturing job creation slowed,
the surveys showed.
The data were compiled between Nov. 12 and 20, and offered a
look at how U.S. services and manufacturing firms were faring right
after the presidential election amid reports of progress from
several companies working to develop a coronavirus vaccine.
"Expectations about the year ahead have surged to the most
optimistic for over six years, reflecting the combination of a
postelection lift to confidence and encouraging news that vaccines
may allow a return to more normal business conditions in the not
too distant future," said Chris Williamson, IHS Markit's chief
business economist.
Still, a surge in Covid-19 cases in the U.S. poses a fresh
challenge for the economic recovery. Job-market growth has shown
signs of slowing and some states and localities have reinstated
restrictions aimed at combating the virus's spread.
In Europe, new lockdowns mostly came into force in the final
week of October. Although narrower than those introduced in the
spring, the new measures appear to have hit services that require
close physical proximity almost as hard, while having less effect
on most other activities. In Europe, the service sector represents
about three-quarters of overall economic activity.
Manufacturing activity continues to be much less negatively
affected than earlier in the year, but the decline in services
appears sufficiently large to cause a drop in gross domestic
product. If that materializes, the eurozone will be further from
returning to the levels of output seen before the pandemic struck
in the first quarter.
Data firm IHS Markit said its composite Purchasing Managers
Index for the eurozone fell to 45.1 in November from 50.0 in
October, reaching its lowest level since May. The PMI for the
services sector fell to 41.3 from 46.9 in November, pointing to an
even larger decline in activity than in October. By contrast, the
PMI for the manufacturing sector continued to point to an increase
in activity, albeit at a slower pace. Similar surveys for the U.S.
to be released later Monday are expected to point to continued
growth in both sectors.
"The fall in the PMIs was far less severe than during the spring
lockdown, supporting our view that the hit to activity will be much
smaller," said Rosie Colthorpe, an economist at Oxford Economics,
which expects the eurozone economy to shrink by 2.6% during the
fourth quarter.
In the second quarter, eurozone GDP declined by 11.8%, and it
rebounded by 12.6% in the third quarter.
Faced with a new lockdown, European service providers cut jobs
at a faster rate than in the previous month, according to the
survey of purchasing managers, while the decline in manufacturing
employment was less sharp. Overall, employment fell for the ninth
straight month.
The divergent fortunes of the services and manufacturing sectors
were evident in the performances of the eurozone's two largest
economies. The French economy relies quite heavily on consumer
services and saw a sharp decline in activity during November.
Germany is more dependent on manufacturing goods for export, and
its economy continued to expand.
A survey of U.K. purchasing managers pointed to a similar
decline in activity, again concentrated in the services sector
following a national lockdown that came into effect on Nov. 5.
The outlook for Europe's economy over the coming months will
depend on whether the new lockdowns succeed in lowering infections
to the point where restrictions can be eased again. Most are
scheduled to end over the coming weeks, with the aim of reopening
economies in time for the key Christmas period, although some
restrictions are likely to remain.
However, IHS Markit reported that businesses had grown more
upbeat about their prospects during November, as developers of
vaccines designed to inoculate against the coronavirus reported
higher-than-expected levels of effectiveness in the final phases of
testing.
"Firms across both manufacturing and services have also become
more optimistic about the year ahead, largely reflecting growing
hopes that the recent encouraging news on vaccines will allow life
to return to normal in the new year," Mr. Williamson, of IHS
Markit, said.
Write to Paul Hannon at paul.hannon@wsj.com and Amara Omeokwe at
amara.omeokwe@wsj.com
(END) Dow Jones Newswires
November 23, 2020 11:49 ET (16:49 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.