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US Saw Continued Economic Uptick in September, as Europe Stalled

While U.S. economic activity picked up in September, performance in Europe and the U.K. generally stalled.

Economists said the uncertainty of the coronavirus pandemic has led to an unsteady outlook for manufacturers and service providers. Even places that saw improved conditions in September and the third quarter could face another downturn in the next few months as the virus and resulting business activity ebbs and flows.

United States

U.S. companies signaled a solid rise in business activity during September, although one that was slightly weaker than seen in August, rounding out a solid third quarter, IHS Markit said in its U.S. Composite Purchasing Managers Index (PMI).

Manufacturers and service providers noted in the monthly survey that they registered strong expansions in output, with goods producers registering a faster rise in production. Adjusted for seasonal factors, the IHS Markit Flash U.S. Composite PMI Output Index was down slightly from August. The index’s quarterly average was the highest since the first quarter of 2019.

The composite index is based on original survey data from IHS Markit’s PMI surveys. Although the pace of expansion slipped slightly from that seen in August, the solid upturn in private-sector output was a marked improvement following the substantial drops in activity during the second quarter, with the downturn having peaked in April at the depths of the pandemic, IHS said.

“U.S. businesses reported a solid end to the third quarter, with demand growing at a steepening rate to fuel a further recovery of output and employment,” Chris Williamson, chief business economist at IHS Markit, said. “The survey data therefore add to signs that the economy will have enjoyed a solid rebound in the third quarter after the second quarter slump.”

Williamson said the question now turns to whether the economy’s strong performance can be sustained into the fourth quarter. Covid-19 infection rates remain a major concern and social-distancing measures continue to act as a dampener on the overall pace of expansion, notably in consumer-facing services, he added.

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“Uncertainty regarding the presidential election has also intensified, cooling business optimism about the year ahead,” Williamson said. “Risks therefore seem tilted to the downside for the coming months, as businesses await clarity with respect to both the path of the pandemic and the election.”

New orders increased for the second successive month, growing at the fastest rate since February 2019. Companies continued to report a recovery in foreign client demand, notably for services, although the overall pace of new export order growth eased following a slowdown in manufacturers’ foreign sales.

Companies raised their average selling prices in September at the fastest pace since October 2018, amid a sharp increase in cost burdens, IHS reported. Both good producers and service providers recorded a faster pace of increases in selling prices.

Manufacturers indicated the fastest improvement in operating conditions since January 2019 in September. The overall upturn was supported by a faster rise in production at manufacturers, with a further increase in new orders and the resumption of operations at clients helping drive growth.

New business rose at a solid pace that was broadly similar to August’s 19-month high. The expansion in new export orders slowed, however, and was only marginal overall. At the same time, output charges rose at the fastest rate since January 2019, as firms partially passed higher costs on to clients following sustained growth in demand.

United Kingdom

The U.K. economic recovery lost momentum in September and the business outlook dropped to its weakest since May. The slowdown reflected weaker rises in manufacturing production and service sector activity.

U.K. private-sector companies also pointed to another drop in business expectations for the year ahead, with the degree of optimism falling to its lowest since May. Where business activity growth was reported, survey respondents often commented on successfully adapting to the constraints imposed by the Covid-19 pandemic and a general boost from the reopening of the U.K. economy.

A number of manufacturers noted that pent-up customer demand had encouraged them to expand production capacity. But there were widespread reports that a lack of consumer confidence and persistent disruptions to business operations due to the pandemic had held back the recovery in September.

Output and new business growth both eased from August’s recent peaks, which was partly linked to a slowing of the catch-up effect while plant capacity was brought back on line through the summer. Export sales were a brighter spot in September, partly helped by rising demand from clients in Asia.

“Manufacturing companies fared better as operations ramped up with the return of staff and with the strongest level of new export orders growth since February 2018,” Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said. “Primarily propped up by orders from East Asia and an awakening amongst European clients, the sector will be concerned about timely supplies to fulfil these new orders and the pressure of higher material costs.”


Business activity stalled across the Eurozone in September, with increasingly divergent trends by sector and country, IHS reported.

Faster growth of manufacturing, led by Germany, was offset by a renewed downturn in the service sector, which was often linked to resurgent coronavirus disease infection rates. A net loss of jobs continued to be reported, although the rate of payroll reduction eased, notably in manufacturing, thanks in part to improved future expectations. Price pressures moderated during the month.

The IHS Markit Eurozone Composite PMI fell for a second successive month in September, indicating only a marginal increase in business activity. Having rebounded sharply in July and, to a lesser extent, August from Covid-19 lockdowns during the second quarter, the PMI has since indicated a near stalling of the economy at the end of the third quarter as rising infection rates and ongoing social-distancing measures curbed demand, notably for consumer-facing services.

Manufacturing output growth accelerated in September to the fastest since February 2018, fueled by the largest rise in new orders seen over this period. Germany continued to lead the recovery, although even with a strong surge in manufacturing output, which grew at the fastest rate since January 2018, Germany’s economic growth was countered by a decline in services activity for the first time since June.

France saw business activity deteriorate for the first time in four months, as falling service-sector output more than offset a modest rise in factory production.

Average prices charged for goods and services fell at the steepest rate since June, as firms increasingly reported the need to offer discounts to stimulate sales. The drop in charges occurred despite costs rising.

Average input prices increased for a fourth consecutive month in September. Falling manufacturing input prices, often linked to the appreciation of the euro, were offset by a further rise in services costs, in turn often blamed on higher virus protection costs, the report noted. The combination of falling selling prices and rising costs indicated the greatest squeeze on companies’ margins since December 2018.

”A two-speed economy is evident, with factories reporting that production growth was buoyed by rising demand, notably from export markets and the reopening of retail in many countries, but the larger service sector has sunk back into decline as face-to-face consumer businesses in particular have been hit by intensifying virus concern,” Williamson said. “The main concern at present is…whether the weakness of the September data will intensify into the fourth quarter and result in a slide back into recession after a frustratingly brief rebound in the third quarter.”