US economy down a gear, euro zone growth at 6-year high

WASHINGTON/LONDON • United States economy shifted down a gear this month, the lowest in six months, flash estimates showed yesterday, due to softer business activity and lower payrolls.

Businesses across the euro zone, on the other hand, marked the end of the first quarter by ramping up activity at the fastest pace in almost six years to meet burgeoning demand despite sharper price rises.

According to flash data released by IHS Markit, US manufacturing purchasing managers' index (PMI) fell to 53.4 this month from 54.2 last month, well below economists' expectations of 54.8.

It was the slowest new order volume since October, signalling a cautious purchasing activity with a renewed effort to streamline inventories.

The latest reading was, however, well above 50 - an indication of growth - marking seven-and-half years of sustained growth across the manufacturing sector, Markit said in a release issued yesterday.

Reading for services PMI came in at 52.9 this month, compared with 53.8 in February, signalling a moderate rate of growth across the sector. A softer increase in new businesses acted as a brake on growth this month, according to Trading Economics.

The composite PMI registered 53.2 this month down from 54.1 in the previous month, showing a slowest expansion of private sector output since September.

"A slowing in the growth pace signalled by the PMI surveys for a second straight month suggests that the economy is struggling to sustain momentum," IHS Markit chief economist Chris Williamson.

"The employment readings from the survey have also deteriorated, suggesting private sector hiring is running at a reduced rate of around 120,000 per month," he said.

IHS Markit flash estimates in euro zone had a brighter outlook.

The composite PMI - seen as a good guide to growth - climbed to 56.7 from last month's 56.0, its highest reading since April 2011. The euro area's accelerating economy is translating into faster job creation and stronger inflation pressures.

A broadening recovery has so far allowed the currency bloc to weather a period fraught with uncertainties ranging from the UK's Brexit vote to the US administration's trade policies, as well as upcoming elections in a number of euro-area countries.

As momentum gathers and a mostly oil-driven spike in inflation firms, the European Central Bank is coming under increasing pressure to plan an exit from its extraordinary stimulus, Bloomberg said.

"The acceleration in growth toward the end of the quarter, and improving trends in new business and an increased hiring appetite suggest that strong growth momentum will be sustained into the second quarter," Mr Williamson said.

A gauge of euro-area factory activity jumped to 56.2 this month from 55.4 last month and an index of services surged to 56.5 from 55.5. Both are at the highest in 71 months and well above the key 50 level.

The European Central Bank's Governing Council holds its next policy-setting meeting on April 27. But economists said policymakers will wait until at least June before upgrading their assessment of the risks to recovery.

A version of this article appeared in the print edition of The Straits Times on March 25, 2017, with the headline 'US economy down a gear, euro zone growth at 6-year high'. Print Edition | Subscribe