A gauge of US manufacturing activity rose in March, indicating that recession fears have been greatly overblown. The Institute for Supply Management (ISM)’s national factory activity index rose sharply to 55.3 in March from 54.2 in February, the latter being the lowest level since November 2016. March’s print was above expectations of 54.5. A reading above 50 indicates expansion in activity.
New orders rose while inventories subsided – a classic positive signal. Every recession since 1960 has been preceded by a sharp downturn in the ISM to below 50, with the only exception being in late 1973, when the oil embargo suddenly prodded the US into recession.
In the meantime, preliminary data from European statistics agency Eurostat published last week showed that retail sales in the eurozone rose for the second consecutive month in February, implying that consumers continued to underpin economic growth in the first quarter of the year.
Retail sales in the currency bloc rose by a stronger-than-expected 0.4 per cent month-on-month, after growing by 0.9 per cent the previous month. On a yearly basis, retail sales rose by 2.8 per cent, the strongest annual performance since November 2017.
Sales of non-food products rose by 0.9 per cent whereas those of food, drinks and tobacco inched up by 0.1 per cent. Vehicle fuel sales decreased by 0.7 per cent.
Finally, in the UK, the latest services Purchasing Manager’s Index (PMI) compiled by IHS Markit and CIPS came in at 48.9 for March, a 2.4 point drop from February. The decrease took the index below the no-change value of 50.
“A drop in service sector activity indicates that UK GDP contracted in March, with the economy stalling over the first quarter as a whole,” IHS Markit chief business economist Chris Williamson said. “This puts the economy at risk of sliding into a deepening downturn in the coming months.”
Political uncertainty has affected demand in the UK services sector, with businesses unwilling to commit to new projects until the Brexit deadlock is settled.
This report was compiled by Bank of Valletta for general information purposes only.