The green shoots of recovery in the global economy wilted a little in May. It was the services sector that let us down, with the JPMorgan Global Services Business Activity Index falling to 43.2.
The index remained well below the neutral mark of 50.0 and was slightly lower than April’s seven-month high of 43.7. That means the contraction in the global services sector continues and the rate was slightly higher in May than in April.
While the rates eased in Russia and the euro zone countries and the services sector expanded in the UK, the downturn continued to accelerate in the services sector in the US, Australia and Spain. The sub-indices for new business in the services sector and the backlog of work sub-index both contracted at an accelerating pace in May.
The Global Manufacturing Purchasing Managers’ Index (PMI), however, posted a better figure of 45.3 in May, up from 41.8 in April. China, India and Turkey reported expansion in output, with the index being above 50in May.
China, the US, India and Turkey all reported gains in the new business sub-index for manufacturing, which means they all showed readings above 50. This index showed a gain for the first time for one-and-a-half years in the US. Interestingly, the manufacturing index was at a lower level than the global services index in May, which indicates that the downturn was more pronounced in services.
The Global Manufacturing Purchasing Managers’ Index (PMI), however, posted a better figure of 45.3 in May, up from 41.8 in April. Paras Jain / Mint
While both sectors contracted at the global level in May, the contraction in the services sector was less severe. That’s probably because while there are manufacturing PMIs for India and China, they don’t figure in the services PMI.
We know, for instance, the services sector did far better than the manufacturing sector in India during the March quarter. The other reason for manufacturing to do relatively better was because it had had a greater drop and since these indices measure month-on-month changes, the bounce back has been stronger for manufacturing.
Thanks to the improvement in the manufacturing PMI, the JPMorgan Global All-Industry Output index moved up to 44 in May from 43.2 in April.
Commenting on the survey, David Hensley, director of global economics coordination at JPMorgan, said: “Further gains in PMI indexes for global output and new orders suggest that the global economy is stabilizing into midyear. The improvement is being driven by the manufacturing sector, which posted precipitous output declines in Q4’08 and Q1’09. A return to economic growth is conditional on a pickup in final demand, which is not yet evident in the data.”
But with markets across the world having run up so much in the hope of economic recovery, the slight decline in services sector activity is not a good sign. Also worrisome is the reading of the input prices sub-index for services, which went up to 47.5 from 44.2 in April. That suggests the fall in input prices may soon be over, despite depressed levels of activity.
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