The economic news was surprisingly good this week, exceeding expectations on nearly every front, and helping calm anxieties about the coronavirus outbreak. Indeed, a move by China to halve some of its existing tariffs on US imports to help it overcome the economic impact of the coronavirus actually boosted markets this week. China said it will cut tariffs on some goods from 5% to 2.5% or 10% to 5% from February 14, while the US also plans to halve tariffs on some Chinese goods, helping smooth trade relations between the two countries.
In the US, the most closely watched index of manufacturing activity rebounded back into positive territory in January. The Institute of Supply Management’s Manufacturing Sector Index hit 50.9 in January, up from 47.8 in December, and way above forecasts for a reading of 48.4. Any reading above 50 suggests activity is expanding. The measure of new orders improved by 4.4 points to 52.0, alongside a 6-point increase in new export orders, to 53.3.
The news was followed by preliminary data on the US jobs market which showed a bigger than expected increase in private sector jobs growth in January. The ADP Research Institute said private sector employment increased by 291,000 in January compared to December. Economists had expected an increase by around 156,000 jobs, in addition to the 199,000 jobs created in December.
In the UK, data on the construction industry showed that sector is still slowing, but a slower pace than previous months. The IHS Markit/CIPS construction activity index rose to 48.4 in January from 44.4 in December, the best reading for eight months. Companies responding in the survey said there was increased demand since the general election victory in December, leading to a far more positive outlook. In addition, final numbers for the UK services sector PMI for January came in at 53.9, 1 point higher than the preliminary reading of 52.9 reported last week and appearing to confirm a bounce in sentiment since the election.
There was good news in the eurozone too, suggesting the struggling economy may have reached a turning point. The composite PMI, compiled by IHS Markit, which measures growth in the services and manufacturing sectors, produced a reading of 51.3 in January, compared to 50.9 in December. Chris Williamson of IHS Markit manufacturing said the euro bloc was showing "welcome" signs of stabilising following a substantial downturn in 2019. Business confidence in the survey hit a 16-month high. However, Williamson said trade frictions remained between both the US and the UK. This suggested that the eurozone would “struggle to muster growth of 1.0% in 2020".
Eurozone powerhouse economy Germany remains a worry, however. The country’s industrial output suffered its biggest drop in more than 10 years in December. Industrial production plummeted by 3.5% on the month, falling below expectations for a 0.2% drop. It was the sharpest decline since 2009.
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