US and eurozone economies continue to diverge

Economic data released last week indicate that the United States economy probably continued to grow in the third quarter but the euro area probably fell into recession.

Surveys of purchasing managers around the world showed that global economic activity accelerated in September. The JPMorgan global all-industry output index rose to 52.5 last month from 50.9 in August.

JPMorgan Global All-Industry Indices
	August	September
Output	50.9	52.5
New orders	49.8	51.6
Input prices	56.2	58.0
Employment	50.9	49.9

The improvement in global output was mainly driven by the US. Manufacturing there returned to expansion in September with the Institute for Supply Management's manufacturing PMI rising to 51.5 from 49.6 in August, the first time since May that it has been above 50. The non-manufacturing index also rose to 55.1 last month from 53.7 in August.

In the euro area, manufacturing also improved in September with Markit's manufacturing PMI rising to 46.1 from 45.1 in August. However, the services business activity index fell to 46.1 last month from 47.2 in August. The weakness in services pulled the composite output index for the euro area down to 46.1 in September from 46.3 in August.

Chris Williamson, Markit's chief economist, said in his report on the purchasing managers' survey on the euro area that it “seems inevitable that the region will have fallen back into recession in the third quarter”.

It was a similar picture for Japan. In the previous week, a report had shown that the Markit/JMMA manufacturing PMI rose to 48.0 in September from 47.7 in August. However, a report last week showed that the services business activity Index fell to 48.9 in September from 49.3 in August. The composite output index for Japan fell to 48.4 last month from 48.6 in August.

Things were little better in China. Manufacturing improved in September but remained in contraction. The manufacturing PMI from the China Federation of Logistics and Purchasing and the National Bureau of Statistics rose to 49.8 in September from 49.2 in August while HSBC's manufacturing PMI rose to 47.9 from 47.6. The services PMI from the National Bureau of Statistics and China Federation of Logistics and Purchasing fell to 53.7 in September though from 56.3 in August.

Beyond the purchasing managers surveys, other economic data released last week also pointed to resilience in the US and weakness elsewhere.

In the US, the employment report on Friday showed that the economy added 114,000 jobs in September after having added 142,000 jobs in August and 181,000 in July. The average of 146,000 jobs added per month in the third quarter matches the average for 2012 so far.

The employment report also showed that the US unemployment rate fell to 7.8 percent in September from 8.1 percent in August. This brings the unemployment rate to its lowest level since January 2009.

In contrast, a report last week showed that unemployment in the euro area was 11.4 percent in August, having stayed unchanged since June. This is the highest unemployment rate since the data series started in 1995, showing a clear divergence from the trend of declining unemployment seen in the US.

Japanese data outside of the purchasing managers data were mixed. The index of coincident economic indicators fell 0.2 point in August but the index of leading economic indicators rose 0.6 point. The diffusion index for large manufacturers from the Bank of Japan's quarterly Tankan survey fell to minus three in September from minus one in June but the index for non-manufacturers was unchanged at 8.