Overnight Economics : Via Markit Economics

Timothy Wilson Powers

Australia 🇦🇺 service output growth slows to three-month low but the upturn remains solid overall.

Key Findings

January survey data signalled a slowdown in Australian service sector activity growth, with the pace of expansion easing to a three-month low. Furthermore, both incoming new orders and employment increased to the weakest extents since data collection began 21 months ago. On the price front, output charges rose at the slowest rate since July 2017 amid a softer upturn in input costs.

Although activity growth weakened during January, the upturn was solid overall. Panellists associated higher output with positive economic conditions and new product launches.

Australian service providers also signalled a rise in new business in ows, supported by new contract wins and successful marketing. That said, the rate of new order growth was the least marked since data collection began in May 2016.

Despite a weaker upturn in demand, capacity pressures persisted in January, as shown by a further rise in backlogs of work. The rate of accumulation slowed, but remained strong relative to the series average.

Job creation was sustained in January amid activity growth and increased backlogs of work. That said, in line with a decelerated expansion in new business, employment growth was the weakest observed over the 21-month survey history.

Nonetheless, confidence strengthened in January

to a four-month high. Around two-thirds of monitored companies forecast output to rise over the next year, with positive sentiment attributed to planned expansion into foreign markets, organic business growth and new marketing initiatives.

Input cost in ation, albeit strong, slowed markedly in January to a fresh survey low. Firms raised selling prices in efforts to share additional cost burdens with customers. However, output price in ation eased to the slowest since July 2017.

The headline gure derived from the survey is the Commonwealth Bank of Australia Services Business Activity Index, which is designed to provide timely indications of changes in business activity in the Australian service sector. Readings above 50.0 signal an improvement in business activity on the previous month while readings below 50.0 show deterioration.

The seasonally adjusted Business Activity Index registered 53.8 in January, down from 55.1 in December, to signal the slowest pace of expansion in Australian service sector output since last October.

Singapore 🇸🇬 private sector economy was off to a good start in 2018, regaining growth momentum in January. Outlook for the year ahead remains positive, boding

well for employment prospects.

Key points

Faster rises in both output and new orders boost the headline PMI

Jobs growth hits record high

Wage inflation picks up sharply Data collected January 12–25

Growth in Singapore’s private sector economy gained momentum at the start of 2018, driven by faster expansions in both output and new business. Export growth also picked up pace. The upturn boosted employment and inventories as firms moved to expand capacity to meet higher demand.

However, backlogs of work continued to rise, as did price pressures. Overall input cost inflation intensified, prompting firms to raise selling prices at a faster pace from December. Meanwhile, business confidence about the year ahead remained upbeat.

The headline Nikkei Singapore Purchasing Managers’ IndexTM (PMITM) rose to 53.6 in January from 52.1 in December, signalling a solid improvement in the health of the sector. The latest reading was above the 2017 average. The headline index is a composite indicator based on questions on new orders, output, employment, suppliers’ delivery times and inventories, thereby providing an early indication of the health of the private sector economy.

There were further signs of strengthening client demand at the start of the year. Inflows of new business picked up in January, supported by an accelerated growth in export sales. Anecdotal evidence suggested greater demand from overseas markets such as China, South Korea, Malaysia, Indonesia and UAE. Higher sales encouraged firms to scale up output, with the rate of expansion strengthening in January.

The sustained upturn in demand spurred firms to step up hiring. Employment rose at the fastest rate in the survey history during January. While a number of firms mentioned increased part-time employment, there were reports of greater demand for personnel in business development and freelance work.

However, higher workforce numbers failed to alleviate capacity pressure. On the contrary, the level of incomplete business increased again and at a steep rate, posting the largest monthly increase since December 2016.

In response to higher client demand, firms scaled up purchasing activity and built-up inventories. Expanded appetite for inputs further strained supply chains. Vendor performance deteriorated for a sixth month running, though the rate of deterioration was marginal. Survey evidence suggested that personnel shortages affected suppliers’ punctuality.

On the price front, survey data showed inflationary pressures intensifying in January. Input cost inflation accelerated to the greatest in nearly four- and-a-half years, driven up by higher paid prices for inputs and a sharp rise in staff costs. Notably, wage inflation was the fastest since September 2016 following a mild increase at the end of 2017. To protect their margins, companies raised selling prices further and at a faster rate compared to December.

Finally, business expectations about the outlook in the year ahead remained solid, with the Future Output Index above the historical average. Optimism was linked to improved business conditions, higher sales forecasts, planned promotions, outlet expansions, new marketing strategies and a wider product variety.

Jan PMI shows continued growth in Japan’s 🇯🇵 service sector output, with input costs seeing the largest monthly rise in over nine years, driven up by higher food and fuel

prices, according to survey evidence.

Key points

New order growth quickens for first time since October 2017

Firms hire additional staff amid rising backlogs of work

Cost pressures intensify further

Data collection 12-26 January

The Japanese service economy began 2018 positively, with an accelerated pace of activity growth. New business inflows increased at a sharper rate, contributing to a rise in the level of outstanding work and prompting firms to hire new staff. Encouraged by stronger upturns in output and new orders, business confidence strengthened to a 56-month high.

The headline index from the survey – the seasonally adjusted Business Activity Index – increased to 51.9 in January, from 51.1 in December. This signalled a moderate pace of expansion, and the first time that output growth has quickened in the Japanese service sector since October last year.

Concurrently, the manufacturing sector expanded production at the fastest rate since February 2014. The Nikkei Composite Output Index increased to 52.8 during January from 52.2 in December to signal a solid pace of private sector output growth.

According to service providers, stronger growth in output was underpinned by greater new business inflows. New order receipts rose for an eighteenth consecutive month and at a quicker rate in January. Firms noted that demand from new and existing customers had fuelled the upturn.

Similarly, new order growth in the manufacturing sector picked up to a four-year high.

In line with a faster expansion in order book volumes, the level of outstanding business with Japanese service providers increased in January. Firms suggested that staff shortages had contributed to an accumulation in backlogs of work.

Buoyed by stronger sales and output growth, service sector firms maintained a positive outlook towards activity over the coming 12 months. The level of confidence strengthened to the highest since May 2013.

Confident that the growth trend in activity would be sustained, Japanese service providers enhanced operating capacity by hiring more employees. Additional jobs have been created in each of the past 13 survey periods. That said, the latest reading signalled a marginal slowdown in the rate of employment growth.

In the manufacturing sector, additional jobs were created at the joint-fastest pace since April 2014, on a par with February 2017. New staff were hired in anticipation of greater new business inflows.

In line with stronger optimism and robust demand conditions, Japanese service sector firms raised their selling prices in January. In fact, output price inflation accelerated for the third successive month to the sharpest since May 2014.

That said, the rate at which input prices increased continued to outstrip that of selling charges, implying a further tightening of profit margins. The rate of inflation was sharp, quickening to the fastest since August 2008.

Similarly, manufacturers raised output prices to partly offset stronger input cost inflation.

Overall picture for HongKong’s 🇨🇳 economy continues to brighten into 2018. Jan PMI survey indicators suggest that economic activity will likely gain momentum in coming months.

Key points

Faster rises in both output and new business, including sales to China

Optimism hits highest since late 2014

Input cost inflation remains strong

Data collected January 12–26

Growth in Hong Kong’s private sector economy extended into 2018, buoyed by further expansions in both output and new orders. Notably, a sustained increase in Chinese demand supported business activity. Higher sales led to a rise in backlogs. However, lower employment and reduced inventories weighed on the headline PMI. On the price front, firms continued to struggle with higher costs, especially from increased input prices, and sought to protect their margins by raising selling prices.

Encouragingly, business confidence remained positive.

The seasonally adjusted headline Nikkei Hong Kong Purchasing Manager’s IndexTM (PMITM) came in at 51.1 in January, down from 51.5 in December, but marking a further improvement in the health of the sector.

Higher output and new orders were reported in January, reflecting a strengthening of client demand. In both cases, faster rates of expansions were seen. Output saw the largest monthly increase for nearly four years, while new business growth was the highest since February 2015, supported also by greater Chinese demand. Anecdotal evidence suggested an improved economic climate and promotional activity as reasons for increased sales.

Meanwhile, higher order book growth placed pressure on operating capacity. January data showed a renewed rise in the level of unfinished work. Furthermore, growth in backlogs was at a six- month high. In part, a drop in employment contributed to the rise in outstanding work. Having risen marginally in December, employment fell in January, with firms citing cost savings as a reason.

Hong Kong’s private sector continued to face rising costs. Overall input price inflation was up again in January, with the rate of increase remaining solid.

While wage inflation added to higher costs, the sharp pick-up in paid prices for inputs was the key driver of inflation. Purchase costs rose at one of the fastest rates in the past six years. While firms raised selling prices further, the rate of increase remained below that of input cost

inflation, implying a further squeeze on margins.

Firms continued to scale up buying activity in response to higher new business. Purchasing activity rose for a fourteenth consecutive month, though the rate of growth was down from December. Increased appetite for inputs strained supply chains further. Vendor performance deteriorated in January, albeit at a slower rate compared to the previous month.

Firms attributed a difficulty in sourcing raw materials for the longer delivery times. Supply shortages also contributed to a drop in input inventories at the start of the year, according to survey data. Input stocks fell for the first time since October 2016.

Business confidence about the outlook in the year ahead improved further, with the Future Output Index hitting almost a three-and-a-half-year high. Factors driving the optimism included improved business conditions, rising e-commerce, new product launches, higher sales forecasts and promotional activity.

China 🇨🇳 service business activity expands at quickest pace for over five years in Jan, in the wake of a solid rise in manufacturing output. The overall upturn boosts total employment growth to the best in ten months.

Key points

Service sector activity expands at fastest pace since May 2012, while manufacturing output also rises solidly.

Total employment rises at quickest pace for ten months.

Overall inflationary pressures ease.

January. Furthermore, the Composite Output Index rose to a seven-year high of 53.7, from 53.0 in December, to signal a solid pace of expansion.

January survey data signalled accelerated rates of activity growth across both the manufacturing and service sectors in China. The steeper pace of expansion was registered by services companies, which saw the most marked increase in activity since May 2012.

This was highlighted by the seasonally adjusted Caixin China General Services Business Activity Index posting 54.7 at the start of 2018, up from 53.9 in December. At the same time, manufacturers signalled the quickest upturn in production levels since December 2016.

Similar to the trends for activity, both service providers and manufacturers noted a further increase in new business during the opening month of the year amid reports of firmer client demand.

Furthermore, new order growth accelerated to a 32-month record across the service sector. Meanwhile, goods producers registered a modest increase in new work that was softer than in December. At the composite level, total new orders rose at a solid pace that was similar to that recorded at the end of 2017.

Employment data continued to signal divergent trends, with rising headcounts at services companies contrasting with further job cuts at manufacturers. Service sector staff numbers have now risen for seventeen months in succession, with some firms adding to their payrolls due to greater business requirements.

Moreover, the rate of job creation edged up to a five-month high. Manufacturing workforce numbers meanwhile declined at the softest pace for nearly three years. As a result, composite employment rose slightly, after broadly stagnating between August and December last year.

After falling in each of the prior four months, backlogs of work were unchanged at services companies in January. In contrast, manufacturers signalled sustained pressures on operating capacity, with outstanding work rising for the twenty-third month in a row and to the greatest extent since March 2011. Consequently, unfinished business rose at a stronger, albeit modest, pace at the composite level.

The rate of input price inflation continued to soften across

China’s manufacturing sector at the start of the year. Though sharp overall, the pace of increase was the weakest since last August. Service providers meanwhile registered a faster rise in cost burdens, with the rate of inflation the steepest since April 2012. Nonetheless, the marked slowdown in the manufacturing sector led composite input prices to increase at the slowest pace for five months.

Despite strong cost pressures, manufacturers and service providers raised their output charges at softer rates in January. In fact, selling prices rose only marginally in both cases. At the composite level, average charges increased at the slowest pace in seven months.

Chinese companies were generally optimistic that activity would increase over the next 12 months. However, improved confidence across the manufacturing sector (four-month high) contrasted with a slight dip in sentiment at service providers (four-month low). Nonetheless, expectations remained relatively subdued across both sectors compared to their long-run trends.

India’s 🇮🇳 service sector recovery continued during Jan as demand conditions improved, but overall performance remains weaker than long-run trend.

Key points

Nikkei India Composite Output PMI

Fastest rise in activity for three months

New business growth sharpest since June 2017

Second-fastest rise in jobs in over six-and-a- half years

Increasing rate of growth

Increasing rate of contraction

Data collected January 12-29

The Indian service sector remained in expansion mode in January, driven by a renewed increase in new business. Growth rates for activity and employment accelerated since December, but remained weaker than their respective long-run survey averages. Having been the strongest in four years in November, input price inflation stabilised at a relatively weak level in January, while businesses increased their charges at a slightly faster rate.

The seasonally adjusted Nikkei Services Business Activity Index remained above the neutral mark of 50.0 in January, signalling a further increase in activity at the start of 2018. The latest figure of 51.7, up from 50.9 in December, signalled a faster expansion albeit one that remained below the long-run survey average. The Information & Communication sub-sector continued to drive overall growth in the latest period.

As manufacturing production growth eased from December’s 60-month high, the Nikkei Composite Output Index fell to 52.5 in January from 53.0. Overall, this was consistent with a modest improvement in operating conditions across the private sector as a whole.

Having been unchanged in December, the volume of new business received by Indian service sector companies rose in January. The pace of expansion was the sharpest since last June, but below the trend level since the series began in December 2005.

Meanwhile, new orders rose for the third consecutive month at manufacturing companies. The rate of growth was solid despite easing from January’s 14-month high.

The latest survey data signalled that capacity constraints remained evident across both the manufacturing and service sectors, as the volume of outstanding business rose for the twentieth successive month. Higher backlogs partly reflected delayed customer payments for orders.

Indian service providers addressed new business inflows and rising backlogs by expanding workforces for the fifth month running in January.

Moreover, the rate of job creation was the fastest since last September.Reflecting improved demand conditions, manufacturers raised their payroll numbers for the sixth consecutive during January. Job creation slowed to the weakest since last October, but remained above the series trend.

Service sector input price inflation stabilised at a moderate pace in January, remaining below the long-run survey average. That said, costs rose sufficiently to generate another increase in prices charged by service providers, with those in the Information & Communication sector registering the strongest inflation of charges.

Indian manufacturers registered a further marked increase in their average cost burdens during January.

Subsequently, manufacturing companies reportedly raised their output charges to pass on higher input costs to consumers.

Service sector companies in India remained optimistic regarding expected activity levels in 12 months’ time. Sentiment eased to a three-month low but was solid overall. Reflecting the trends for activity and new business, Information & Communication was the most optimistic sub-sector in January.

As was the case with the service sector, firms retained positive projections for output over the next 12 months, but the level of confidence remained weak by historical standards.

Egypt 🇪🇬 non-oil private sector stabilises in Jan, with export sales pick-up particularly encouraging.

Key Findings

Headline PMI rises to 49.9

Business activity stabilises

New export orders expand

The headline seasonally adjusted Emirates NBD Egypt Purchasing Managers’ IndexTM (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – rose from 48.3 in December to 49.9 in January.

This was consistent with a broad stabilisation of business conditions across Egypt’s non-oil private sector. Notably,

the latest reading was above its long-run average (48.1).

The headline PMI reading mainly reflected a broad stabilisation in new business and output. Both indices registered close to the neutral 50.0 threshold, following reductions in the previous month. Where increases were reported firms commented on new client wins, while those companies that registered lower new orders and output mentioned unfavourable economic conditions and high prices.

At the same time, Egypt’s non-oil private sector recorded a renewed expansion in new export orders during January. Stronger demand for Egyptian goods and services from international markets was cited as the key reason behind the latest increase in new export orders. That said, the rate of growth was marginal.

Continuing the trend observed since June 2015, staffing levels fell during January. However, the pace of job shedding was marginal and slower than the series trend.

Private sector firms continued to face higher input costs. Despite accelerating to a three-month high, inflation remained below the series trend. According to anecdotal evidence, currency weakness contributed to greater cost pressures.

Amid reports of expected improvements in demand, firms were encouraged to engage in purchasing activity at the start of the year. Furthermore, the rate of expansion accelerated to the strongest since August 2014 and was marked overall. Nonetheless, input stocks declined, albeit fractionally.

Lastly, companies retained optimism towards the 12-month outlook for output. Furthermore, the degree of positive sentiment was stronger than the series average. Anticipated improvements in demand conditions and market stability were cited as the key factors behind optimism.

Slower Saudi Arabia 🇸🇦 private sector growth at start of 2018, but business confidence hits 8-month high. Furthermore, job creation improves.

Key Findings

Weakest rise in business activity since the survey began in August 2009

Softer new order growth linked to VAT introduction in January

Job creation and business optimism improve amid hopes that demand will rebound

Source: Markit Economics

Trading Economics -R.W.N II

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