You are on page 1of 3

PP 7767/09/2010(025354) MARKET DATELINE

Global

Economic Highlights
6 September 2010

ï

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 nonmanufacturing 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
Please read important disclosures at the end of this report.

(603) 9280 2163 bspeck@rhb.com.my

A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com

Page 1 of 3

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.

A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com

Page 2 of 3

6 September 2010

IMPORTANT DISCLOSURES This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report. This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. this report. RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any company that may be involved in this transaction. “Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports. This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel. The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues. The Neither RHBRI,

RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of

A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com

Page 3 of 3