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Global service sectors improve; manufacturing in doldrums

Global service sectors improve; manufacturing in doldrums


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While the political crisis between the US and Iran dominated the headlines this week, underlying economic news was relatively positive. A key survey of the UK services sector, which accounts for around 80% of UK GDP, rose from an index reading of 49.3 in November to 50 in December. Any reading above 50 signals expansion while readings below 50 suggests activity is shrinking. The slight improvement was attributed to rising orders, with the sharpest rally in new work since last summer. More jobs were also created as business optimism hit its highest level in more than a year.

Activity in the US services sector also improved more than expected in December. The Institute for Supply Management’s (ISM) services index rose to 55.0 from 53.9 in November, above expectations for a reading of 54.5. That compares to ISM’s manufacturing PMI reading of 47.2 in December, the lowest since June 2009. However, the resilient performance of the services sector suggests the beleaguered state of US manufacturing is not spreading to the broader economy. 

Confidence was also boosted this week by news that Chinese Vice-Premier Liu will travel to Washington next week to sign the long-awaited “Phase 1” trade deal with the US, which may bring some respite to the US manufacturing sector.

Back in the UK, bad news for the high street: the British Retail Consortium (BRC) said 2019 was the worst year on record for retail sales. At first glance, the reading from the BRC-KPMG retail sales monitor was respectable, with total sales rising by 1.9% in December compared to a year earlier. On a like-for-like basis, which removes the effect of new store openings, retail sales rose by 1.7% compared to a 0.7% decline a year earlier. Crucially, however, the figures were distorted by the timing of Black Friday, which made sales for the period appear better than they were. Looking at the annual change over November and December together, which removes the Black Friday distortion, the figures reveal a fall in sales of 0.9%.

Helen Dickinson, chief executive of the BRC, said: "2019 was the worst year on record, and the first year to show an overall decline in retail sales.” The BRC added that even online sales were disappointing. They were up by 12.8% in December. But taking the two-month average to avoid the Black Friday effect, they increased by just 2.6%.

The disappointing news was echoed in a speech given on Thursday by Bank of England governor Mark Carney. He hinted that the Bank may cut interest rates to boost the economy, as spending growth had slowed due to uncertainty about the economic outlook. He said: “The economy has been sluggish, slack has been growing, and inflation is below target. Much hinges on the speed with which domestic confidence returns.”

Meanwhile, activity in the eurozone economy picked up slightly in December. The IHS Markit Composite Purchasing Managers’ Index - which measures activity in the services and manufacturing sectors – rose to a four-month high of 50.9 in December from 50.6 in November. More encouragingly, the PMI for the eurozone services sector rose to 52.8 in December from 51.9 in November, mirroring the improving service sectors in the UK and US.




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