U.S. Business Activity Shows Signs of Pickup Against Sharper Global Slowdown

Date: Monday, November 25, 2019
Source: The Wall Street Journal

New ECB chief Lagarde warns that robust economic growth is ‘no longer an absolute certainty’

Business activity in the U.S. is offering signs of a pickup in late 2019, contrasting with more sluggish economic performances in some of the world’s other largest economies.

Data company IHS Markit said Friday that its composite Purchasing Managers’ Index for the U.S., a measure of activity in businesses, posted a four-month high of 51.9 in November, up from 50.9 in October. A level above 50 points to growth in business activity, while a reading below that mark points to contraction.

“The worst of the economy’s recent soft patch may be behind us,” said Chris Williamson, chief business economist at IHS Markit, referring to the U.S. economy.

Still, U.S. business activity is muted compared with levels seen over the course of the economic expansion that began in mid-2009. That, in part, reflects heightened trade uncertainty that has delayed investments, particularly among manufacturers. Meanwhile, leading sectors such as automobiles and electronic components have faced specific challenges, such as tighter emissions standards.

Such factors have weighed more heavily on economies outside the U.S. IHS Markit’s composite PMI for the eurozone fell to 50.3 in November from 50.6 in October, indicating the currency area’s economy was close to stagnation.

A similar survey of Japanese businesses pointed to a decline in activity during November, which was partly due to severe weather and an October increase in the sales tax.

In her first speech as head of the European Central Bank, Christine Lagarde warned on Friday that a fracturing of the global economic system means that robust rates of economic growth “are no longer an absolute certainty.”

“Ongoing trade tensions and geopolitical uncertainties are contributing to a slowdown in world trade growth, which has more than halved since last year,” she said. “This has in turn depressed global growth to its lowest level since the great financial crisis.”

The Organization for Economic Cooperation and Development said Thursday it expects the eurozone economy to grow by 1.2% this year, and the Japanese economy to expand by 1%. It expects the U.S. economy to grow by 2.3%. All three are forecast to slow slightly in 2020.

The Paris-based research body, which represents 36 advanced economies, said those low rates of growth could become standard if governments don’t roll back newly erected obstacles to trade and take steps to boost investment.

Central banks have responded to the global slowdown and weakening manufacturing output by cutting interest rates. The U.S. Federal Reserve has lowered its key interest rate three times since July. The ECB cut its already negative interest rate in September and restarted a paused program of bond purchases this month.

In the eurozone, weakness in manufacturing showed signs of spilling over to the services sector. In the U.S., services have remained more resistant to such spillover, with much of the economic weakness this year contained to the relatively small manufacturing sector.

Business activity among service companies reached a four-month high in the U.S. in November, reflecting strengthening customer demand, Friday’s report showed.

U.S. consumer spending this year has helped offset faltering business investment. In the third quarter, investment in structures dropped sharply.

IHS Markit noted the upturn in service-sector activity was relatively muted, by historical standards, as U.S. businesses remain cautious about the outlook.

U.S. economic growth has slowed this year. In the third quarter, gross domestic product expanded at a 1.9% annual rate, down from 2% in the second quarter and 3.1% in the first. With no end to slowing global growth and trade tensions in sight, the pullback is expected to continue. Forecasting firm Macroeconomic Advisers projects economic growth at a 1.5% pace in the fourth quarter, which would be the slowest pace since the end of last year, when it was 1.1%.


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