One concern thrown up by the Global Purchasing Managers’ Index (PMI) data for May was the downturn in the services sector. TheJPMorganGlobal Services Business Activity Index in May was lower than the April figure. Thankfully, that trend has not been sustained in June, with the index at 47.4, well above the May level of 43.2. That means the global services sector is still contracting, but at a slower rate. Only in Australia and the UK did the sector show expansion, that is, a reading above 50. Interestingly, the input prices sub-index rose above 50, indicating an increase in input costs. This rise could be an early warning signal of the return of inflation.
In fact, the composite index of manufacturing and services, known as the JPMorgan Global All-Industry Output Index, showed a rise in its input price sub-index, from 46 in May to 49.6 in June. There was no such rise in input prices in the global manufacturing PMI, however, which indicates that there’s still plenty of spare capacity in manufacturing worldwide.
Nevertheless, manufacturing output continued to rise in China, India, Denmark and Turkey, while there was a return to expansion in the manufacturing sector in the US, Japan the UK and Brazil. The net result: the Global Output Index stood at 50.4 in June, indicating expansion from the previous month. David Hensley, director of Global Economics Co-Ordination at JPMorgan, has also said that “the new orders to inventory ratio is still rising, suggesting that the ongoing recovery is getting traction”.
The upshot of the improvement in both the manufacturing and services indices was an increase in the All-Industry Output Index to 48.1, from 44 in May. While that shows the world economy continued to contract in June, it’s also very near stability. If the trend holds, the global economy should start recovering in the current quarter.
The employment data, however, continued to be very negative, with the combined services and manufacturing employment index at 44.1 in June. Employment losses were higher in manufacturing than in services.
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