Businesses in the U.K. and the eurozone have benefited from improvements in supply chains and cooling inflation. PHOTO: TOLGA AKMEN/SHUTTERSTOCK
Business surveys in the U.S., U.K., and eurozone document a jump in services-sector activity
Business activity in the U.S., the eurozone and the U.K. picked up in February, a boost for the global economy and a sign of resilience as Russia’s war on Ukraine is poised to enter its second year.
Surveys of manufacturers and service providers released Tuesday also pointed to an easing of supply problems, with companies reporting that raw material and component costs rose at the slowest pace since the fall of 2020. Wage pressures remained elevated, however.
The surveys from S&P Global add to recent signs of renewed economic strength on both sides of the Atlantic and possibly diminished risks of a global recession this year.
Rising energy prices following Russia’s invasion of Ukraine helped slow the global economy in 2022. The U.S. economy contracted in the first half of the year, while Germany’s contracted in the final three months of the year.
In recent months, household and business confidence has rebounded and a mild winter in Europe helped cut energy consumption, contributing to a fall in energy prices from their highs last summer.
Recent data show the U.S. started the year with a burst of economic activity. Payrolls grew by 517,000 in January, the most since July. Cooling inflation and continued wage increases have boosted real incomes and support consumer spending. Retail sales rose 3% in January from December, snapping two months of declines.
The International Monetary Fund last month raised its estimate of global growth this year to 2.9%, up from 2.7% in its October projection, and said it saw less chance of recession. The fund cited resilient demand, easing inflation and China’s reopening for the brighter outlook.
S&P Global said its composite output index for the U.S., a closely watched survey of business activity, rose to 50.2 in February, the highest in eight months. A reading above 50 points to an expansion while a reading below that level points to a contraction.
The index of service businesses hit an eight-month high of 50.5, following January’s 46.8. The manufacturing index for the U.S. rose to 48.4 in February from 46.9, suggesting the sector continues to contract, but at a slower pace. Subdued demand led firms to focus on filling their backlog of work.
“February is seeing a welcome steadying of business activity,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “The business mood has brightened amid signs that inflation has peaked and recession risks have faded.”
The composite index for the eurozone rose to 52.3 in February, signaling a faster pace of expansion than January’s 50.3. In the U.K., the composite PMI jumped to 53.0 from 48.5 to reach an eight-month high.
In Europe, growth has been buoyed by rising confidence as recession and inflation worries have also eased, Mr. Williamson said.
Companies in the U.S., Europe and the U.K. said they were continuing to raise their prices to account for ongoing wage pressures, even though smoother supply chains had eased price increases for inputs.
The driving force on inflation has shifted to wages, Mr. Williamson said. That could raise the prospect of a situation in which rising pay and consumer prices reinforce each other, he added.
In the U.S., the annual inflation rate has slowed since June, though price pressures firmed somewhat on a monthly basis in January.
In Europe, the fall in energy prices has helped cool inflation in recent months. But the economy’s resilience and strong hiring raise the risk that price increases will take longer to return to levels that central banks are comfortable with.
Central bankers on both sides of the Atlantic have said they intend to continue pushing up interest rates to bring inflation under control. Those higher borrowing costs could weigh on businesses and consumers, and yet tip economies into recession later this year.
Services providers accounted for much of February’s pickup. U.S. firms reported their first expansion in output since June 2020 and signaled more optimism about the future. Europe’s services expansion came from tourism and recreational activities.
Europe’s resilience is a boon for the region’s governments, which are now facing lower borrowing costs than originally planned when they enacted measures to support households and businesses facing sharply higher energy costs.
The U.K. on Tuesday reported a budget surplus of £5.4 billion in January, equivalent to $6.5 billion, boosted by higher revenues from income taxes. As in other parts of Europe, unemployment has remained low in the U.K. and pay has been rising, although less rapidly than consumer prices. Germany’s finance ministry said on Tuesday that tax revenues in January were up from a year ago.
“The improved economic outlook is gradually starting to ease the pressures on the U.K.’s public finances,” said Jake Finney, an economist at business services firm PwC UK.
Elsewhere in the world, there were also some signs of recovery in Japan as a revival of international tourism after Covid-19 restrictions were lifted helped boost activity in the services sector, although factories continued to report a decline in export orders.
Other recent data show that Chinese consumers are again venturing out and shopping in big cities after the government lifted Covid restrictions late last year. In a sign of renewed demand, inflation in China accelerated in January.
Featured article licensed from The Wall Street Journal