Global growth held up by US but outlook still weak

Last week's data show that the global economy steadied somewhat in September, with weakness in the euro area and Japan more than offset by continued growth in the United States.

In the euro area, the Markit composite purchasing managers' index fell to 49.1 in September from 50.7 in August. The manufacturing PMI fell to 48.5 in September from 49.0 in August while the services PMI fell to 48.8 from 51.5.

Chris Williamson, the chief economist at Markit, said that the PMI for September provided “confirmation that the Eurozone recovery has ground to a halt” while a “steep drop in new business ... suggests that GDP will contract in the fourth quarter unless business and consumer confidence rallies in coming weeks”.

In Japan, recent data have been mixed. A report last week showed that Japan's index of coincident economic indicators rose to 107.4 in August from 107.1 in July, with the Cabinet Office assessing the economy as improving.

However, purchasing managers surveys in September were negative. Both the manufacturing and services PMIs came in below 50, indicating that economic activity contracted last month. The manufacturing PMI fell to 49.3 in September from 51.9 in August while the services PMI rose to 46.4 from 44.3.

The surveys of purchasing managers in the US, however, were more positive. The Institute for Supply Management's manufacturing PMI climbed to 51.6 in September from 50.6 in August while the non-manufacturing index dropped slightly to 53.0 from 53.3. Both indices remain above 50, indicating that economic activity continued to grow in September.

Another indication that the US economy continued to grow in September was the employment report on Friday which showed that non-farm payrolls increased by 103,000 last month, helping to keep the unemployment rate steady at 9.1 percent.

The performance of the US economy was enough to hold up growth for the global economy as a whole. The JPMorgan Global All-Industry Output Index rose to 52.0 in September from 51.5 in August, with US output hitting a six-month high.

JPMorgan Global All-Industry Indices
	August	September
Output	51.5	52.0
New orders	50.9	51.5
Input prices	58.0	57.3
Employment	50.9	49.9

The acceleration in global output may not be maintained though. David Hensley, Director of Global Economics Coordination at JPMorgan, said in the global PMI report that the pace of increase in global economic activity is still “very slow” and that a possible weakening of the labour market could provide a “constraint on future growth prospects”.

Indeed, leading indicators released last week for the US and Japanese economies were negative.

In the US, the Economic Cycle Research Institute's Weekly Leading Index fell to 121.2 for the week ending 30 September from 121.8 the prior week. The annualized growth rate fell to minus 8.1 from minus 7.2.

In Japan, the index of leading economic indicators fell to 103.8 in August from 104.6 in July.

So while the global economy may have maintained growth through the third quarter, there is a risk that it could deteriorate again in subsequent quarters.