Survey data released on Thursday suggested private sector economic activity in the US held steady in early March, marking a familiar contrast with weaker readings out of Europe’s two largest economies.
US manufacturing activity expanded at the briskest pace since summer of 2022 this month, according to the preliminary read on S&P Global’s gauge for March. The 52.5 flash headline print on the factory index marked a slight improvement from February’s final reading.
On the services side of the world’s largest economy, activity continued to expand, albeit at a slower rate. 51.7 on the services gauge was the weakest reading since November.
Although the moderation in services activity suggests some households may be feeling the strain from higher rates, the color from Thursday’s release showed firms are “increasingly optimistic about the outlook” with rate cuts around the corner. Indeed, a measure of confidence among service providers in the US hit a 22-month high.
According to S&P Global’s chief business economist Chris Williamson, Q1 2024 might’ve been the best quarter for the US economy since Q1 of last year. “The survey data point to another quarter of robust GDP growth accompanied by sustained hiring as companies continue to report new order growth,” he said.
Of course, the downside to robust demand is upside risk to inflation. That was on full display early this month, when S&P Global observed “a steepening rise in costs.” When that’s accompanied by “strengthened pricing power,” it creates a pressure cooker.
“Costs have increased on the back of further wage growth and rising fuel prices, pushing overall selling price inflation for goods and services up to its highest for nearly a year,” Williamson went on, lamenting an “unwelcome” jump in prices from the January lows. Suffice to say investors will be watching the ISM price gauges closely when they’re updated early next month.
Across the pond, Germany’s beleaguered factories can’t win for losing. The flash read on the manufacturing PMI for Germany was a truly miserable 41.6. “Germany is not getting back on track,” Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which collaborates with S&P Global on the European surveys, despaired.
Although the German services sector held up better this month, the gauge is still below 50 despite notching a six-month high. All in all, Germany likely suffered another shallow contraction in Q1, de la Rubia said.
In France, the situation isn’t a lot better if it’s any better at all. Both the services and manufacturing gauges printed two-month lows, with both squarely below the 50 demarcation line that separates expansion from contraction.
Norman Liebke, another Hamburg Commercial Bank economist, said there’s a silver lining in France. “Companies painted a more optimistic picture of the future due to an expected economic recovery this year,” he said, while conceding that Thursday’s data suggested any recovery has been “delay[ed].”
At the bloc-wide level, the European economy’s basically stable. The composite PMI for the region registered 49.9 in the early read for March, a nine-month high.
To be sure, the manufacturing index still sits well below 50, but the services sector’s expanding, albeit at a subdued rate.
The problem’s plain enough: Europe lives and dies by France and Germany. If those two economies are underperforming, it’ll be very difficult for the bloc to sustain a recovery.
De la Rubia underscored the point. “None of this is encouraging, and compared to the eurozone as a whole, both economies are laggards,” he said, of France and Germany. “These are the times that make you humble and where a modest monthly expansion is good news.”
Coming full circle, there’s still a demonstrable disparity between the US economy and its large, developed market peers. As Williamson put it Thursday, extrapolating from upbeat sentiment among US services providers, “the broad-based expansion seen in March will [likely] persist into the summer.”
