PP 7767/09/2010(025354)

Economic Highlights
Global
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MARKET DATELINE

6 September 2010

1 Global Services Turning Weaker, Pointing To Slower

Economic Growth In The 2H

2 US Services Activities Slowed Down; Unemployment Rate

Inched Up And Non-Farm Private Payrolls Slowed Down
In August

3 Euroland’s Services Activities Inched Up, But Retail Sales

Moderated

Tracking The World Economy...

Today’s Highlight

Global Services Turning Weaker, Pointing To Slower Economic Growth In The 2H

The global Purchasing Manager Index (PMI) for services sector, based on a survey conducted by JP Morgan and Markit
Economics in London, fell to 53.5 in August, from 54.3 in July and a high of 56.3 in April. This was the fourth straight
month of easing and the slowest pace of increase in six months, indicating that global services activities are trending
lower, in line with a slowdown in global trade activities and consumer spending. The weakness was reflected in a
slowdown in new business activities and a sharper contraction in backlogs of work during the month. Indeed, new
business activities fell to the slowest pace in eight months in August. As a result, businesses turned cautious and started
to retrench workers in August, the first in five months. Input costs, on the other hand, rebounded during the month,
pointing to a pick-up in price pressure, which is likely to be temporary.

In terms of countries, the slowdown was reflected in a slowdown in activities in the US, UK and India, while activities
in Japan and Australia continued to contract, albeit by a smaller magnitude. These were, however, mitigated by an
improvement in activities in the Euroland, while China’s services activities held stable during the month.

The moderation in global manufacturing and services activities resulted in the global composite index falling to 53.9 in
August, from 54.6 in July and a high of 57.7 in April. This was the fourth consecutive month of slowing down and the
slowest pace in six months, suggesting that global economic recovery from the worst recession since World War II is
losing momentum. Indeed, we expect the global economy to expand at a more moderate pace in the 2H of the year,
on the back of dissipating fiscal stimulus, the introduction of austerity measures in Europe and policy tightening in Asia.

The US Economy

Services Activities Slowed Down In August

‹ The US Purchasing Managers Index (PMI) of the Institute for Supply and Management (ISM) for non-
manufacturing activity fell to 51.5 in August, from 54.3 in July and a high of 55.4 recorded in March-May.
The non-manufacturing index comprised mainly services. A reading above 50 indicates expansion of activity and
prices in the non-manufacturing sector, while a reading below 50 signals contraction. This was the slowest pace
of increase in seven months, suggesting that services activities are moderating, in line with a moderation in

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 6 September 2010

consumer spending and exports. The slowdown was on account of weaker business activities, new orders, backlog
of orders, supplier deliveries and inventory. This was made worse by a contraction in new exports orders during
the month, after a brief rebound in July. As a result, services providers retrenched workers in August, after
recruiting some workers in July. Meanwhile, input costs rebounded in August, after three consecutive months of
easing, pointing to a pick-up in price pressure. As a whole, the reading suggests that the US economy will likely
expand at a more moderate pace in the 3Q, after slowing down to an annualised rate of 1.6% in the 2Q.

Unemployment Rate Inched Up And Non-Farm Private Payrolls Slowed Down In August

‹ US unemployment rate inched up slightly to 9.6% of total labour force in August, after remaining stable
for two consecutive months at 9.5% in June-July. Similarly, non-farm payrolls fell by 54,000 in August, the
same level of decline as in July. This was the third straight month of decline, due mainly to a retrenchment of
121,000 jobs in government sector as temporary workers employed by the government for census jobs
were terminated. Exclude government agencies, the private sector continued to create 67,000 jobs in
August, better than consensus expectation but by a smaller magnitude compared with 107,000 jobs created in
July. This was the eighth consecutive month of jobs creation in the non-farm private sector, indicating that the
job market is improving, albeit gradually. This is to be expected given that the economy has just recovered from
a severe recession in 2009 and the gradual improvement in job market will likely help to sustain consumer
spending in the country. The slowdown in job creation in the private sector was due to a retrenchment in the
manufacturing and a slowdown in recruitment in the services sectors. These were, however, mitigated by recruitment
in the construction sector during the month. A slowdown in jobs creation in the services sector was reflected in
declines in jobs in trade & transport (mainly retail trade) and information sectors. These were, however, mitigated
by a pick-up in jobs in professional & business services (including temporary workers), education and leisure &
hospitality sectors as well as smaller retrenchment in financial services sector.

The Euroland Economy

Services Activities Inched Up, But Retail Sales Moderated

‹ Euroland’s Purchasing Manager Index (PMI) for the services sector inched up marginally to 55.9 in
August, the highest in three months and from 55.8 in July. This suggests that services activities in the region
have gained some momentum after easing from the peak of 56.2 in May, implying that services activities, though
moderating, are likely to remain resilient. Growth of business activities in the sector remained firmly driven by
France and Germany. Italy and Ireland also reported growth, but business activities in Spain fell slightly. Despite
a pick-up in services activities, the region’s composite index moderated to 56.2 in August, from 56.7 in
July and a more than two-year high of 57.3 in April, on the back of a slowdown in manufacturing activities. As
a whole, this suggests that the Euroland economy will likely moderate in the months ahead, albeit
remaining resilient.

‹ Euroland’s retail sales moderated to 0.1% mom in July, from +0.2% in June. This was the second
consecutive month of easing, on account of a decline in sales of non-food products, which contracted by 0.1% mom
in July, after moderating to 0.4% in June. This was, however, mitigated by a pick-up in sales of food, drink &
tobacco, which rose by 0.3% mom in July, a rebound from -0.5% in June. Yoy, retail sales grew at a more
moderate pace of 1.1% in July, compared with +1.2% in June, indicating that consumer spending has slowed down
somewhat. This is to be expected given high unemployment rate in the region and prospects of a slowdown in
the global economy. As it stands, the unemployment rate in the Euroland held stable for the fifth consecutive
month and at 10.0% of labour force in July, the highest on record.

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