Global Economy
Growth of global service sector slows in June but job creation remains solid
By Finfacts Team
Jul 7, 2011 - 5:00 AM

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Source: Markit

June saw a modest deceleration in the rate of expansion of the global service sector. The JPMorgan Global Services Business Activity Index fell to 52.1, down from 52.5 in May. Although the recovery in activity has now been sustained for almost two years, the pace of growth has lost impetus in Q2 2011.

For the Q2 as a whole, the average business activity index reading is 51.9. This is the lowest quarterly outcome since the recovery began in Q3 2009 and well below Q1 2011's post-recession peak of 57.0. The service sector is therefore likely to be a lesser positive growth spur for global GDP than at the start of the year.

Underlying the weaker expansions of business activity so far in mid-2011 has been a similar marked slowdown in new business growth. The fragility of the recovery in the service sector was also highlighted by a slight decrease in outstanding business.

Backlogs of work fell for the first time in six months, suggesting that part of the increase in activity may have only been sustained through a reduction in work outstanding.

National PMI (Purchasing Managers' Index) data continued to point to a broad-based recovery in business activity. Almost all of the surveys for which June data were collected signalled an increase in activity, the sole exceptions being those for Japan and Italy.

The former saw its rate of contraction ease further from those seen during the Tohoku earthquake affected month's of March and April. The latter, meanwhile, saw output fall for the first time since January and to the greatest degree in almost two years.

Rates of growth in business activity were little changed in the US, China and the UK, slowing slightly in the US and China (to a 17-month low in the former) and edging higher in the UK.

The rate of increase eased sharply in the Eurozone, but remained above the global average. Growth of euro area services activity was led by robust expansions in Germany and France, whereas the performances seen outside of the big-two Eurozone economies were comparatively subdued.

Job creation was recorded in the global service sector during June, extending the current period of sustained increase to a year. Employment rose in the US, the Eurozone, China, the UK,

India, Brazil, Hong Kong and Russia. Job losses were seen in Japan, Italy, Spain, Australia and Ireland.

Cost inflation eased sharply in June, reaching a nine-month low. Input prices have now risen in each month since August 2009. The steepest easing in cost inflation was seen in the US.

Commenting on the survey, David Hensley, Director of Global Economics Coordination at JPMorgan, said: "The PMI data confirm that growth of services activity lost steam during Q2 2011. The quarterly rate of expansion eased from Q1's post-recession peak to its weakest during the ongoing recovery, meaning that the sector's contribution to broader GDP growth will lessen. However, with job creation apparently still reasonably solid and inflation beginning to diminish, consumer demand for services is likely to strengthen in coming months."

The Global Report on Services is based on the results of surveys covering around 3,500 executives carried out in the USA by ISM (Institute of supply Management), and in Japan, China, the UK, Germany, France, Spain, Italy, Brazil, India, Russia, Ireland and Hong Kong by Markit, in Australia by AiG, New Zealand by Business NZ and Mexico by HSBC. These countries together account for an estimated 80% of global service sector output. For the US, data are taken from the ISM non-manufacturing survey which, in addition to the service sector included in the other countries, also includes agriculture, construction, mining, public administration, retail, utilities and wholesale sectors.

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