Services companies in the U.S. and Asia gained ground in January, while a continued contraction in the eurozone threatened a double-dip recession, surveys of purchasing managers showed.
The eurozone economy shrank in the final three months of last year amid high Covid-19 infection rates and related restrictions posed the risk of a double-dip recession. Surveys compiled by data firm
released Wednesday showed the eurozone’s service sector fell to 45.0 from 46.4 in December. A reading above 50 indicates growth, while a level below 50 signals contraction.
Another quarter of declining output would leave it further behind the U.S. and China in charting a recovery from the pandemic’s toll.
By contrast, IHS Markit said its U.S. services index was 58.3, up from 54.8 in December and the second-sharpest increase in almost six years.
Stronger client demand and an upturn in new business drove the expansion, said Chris Williamson, IHS Markit’s chief business economist. Many companies indicated that they see demand reviving even more as business restrictions imposed amid a coronavirus surge late last year are relaxed.
“Companies have become increasingly upbeat amid news of vaccine roll-outs and hopes of further stimulus,” said Mr. Williams.
Separately, the Institute for Supply Management’s nonmanufacturing index rose to 58.7 in January, from 57.7 in December and the highest reading since Feb. 2019. Fourteen out of 18 services industries reported growth in January.
U.S. manufacturing also gained momentum in January, as demand for goods continued to buoy factory activity.
In China, a similar survey of service providers recorded a continued expansion in January but at the weakest rate in nine months, as a fresh outbreak in the north of the country was met with restrictions on the movements of millions of people.
Japan’s services sector contracted more sharply in January as rising infection rates prompted the declaration of a state of emergency in the capital city and neighboring prefectures.
In some countries where the virus’s spread has been more contained, services activity has continued to rebound, with both India and Australia reporting steady growth. Even in those countries, the pace of the recovery was held back by weak overseas demand.
According to IHS Markit, the U.K. suffered Europe’s largest fall in services activity during January as new infections remained high and government restrictions were at their tightest since April.
The service sector’s Purchasing Managers Index fell to 39.5 in January from 49.4 in December.
However, businesses reported an increase in optimism about their prospects over the coming year as the U.K. led other major economies in deploying Covid-19 vaccines. “The sector will remain in a parlous state until vaccination programs give customers the confidence to start spending again,” said
group director at the Chartered Institute of Procurement & Supply, which helps compile the survey in the U.K.
The slower deployment of vaccines across the eurozone means that is a more distant hope, with the currency area’s economy likely to recover less rapidly than anticipated this year.
In recent years, purchasing managers indexes have become important indicators of where the global economy might be heading. But in the current slowdown, where small businesses were some of the hardest hit, PMI numbers may not be telling the full story. WSJ explains. Photo: Getty Images (Originally Published July 1, 2020)
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