Data released by IHS Markit's flash Purchasing Managers' Index (PMI) for November 2020 disclosed contrasting economic trends on either side of the Atlantic. While U.S. business activity displayed accelerated growth at its fastest rate in over five years, Europe was met with renewed downturns and dropped to a six-month low.
IHS Markit, an American-British information provider, releases its PMI data every month by surveying senior executives at private sector companies asking how busy they've been compared to the month before. Consequently, investors are provided with a current idea of how the economy is doing instead of having to rely on backward-looking data such as economic growth.
U.S. business activity, which exceeded expectations, has put the country in economic expansion territory. These readings offer indications of the U.S. economic state soon after President-Elect Joe Biden beat incumbent President Donald Trump in the presidential election three weeks ago. European business activity data as per the PMI suggests that the UK and the Eurozone are heading toward a double-dip recession, i.e., two periods of recession separated by a brief period of recovery. The most notable difference between the U.S. and Europe as per the PMI was their service industries' performance. In this regard, the U.S. saw a rise to its highest level since March 2015, while the Eurozone shrank for the third consecutive month. This divergence of economic trends may be attributed, to some degree, to the introduction of stricter restrictions in many European countries as governments seek to contain second waves of COVID-19 infections. In contrast, the U.S. saw a relaxation of its restrictions.
However, it is not all gloom for Europe as the part of the PMI which measures confidence in future economic output reached its highest level since February 2020, which was the period during which major parts of the world started feeling the brunt of COVID-19. This reported revitalised optimism could be related to all the promising vaccine announcements in addition to investors' expecting the European Central Bank to inject more money into the economy.
While this report in isolation is positive news for the U.S., other measures of the country's economy provide worrying results. Retail sales data came in below expectation, which directly impacted the country's stocks. Further, the number of unemployment claims picked up, which denotes a struggling labour market.
