Survey data shows economic activity is growing in the euro area

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Although not official data, the international nature of the IHS Markit Monthly Purchasing Managers Index (PMI) makes it a useful tool for comparing economic progress. Provisional readings from the July survey, released today, offer useful insights into the pace of the recovery from the pandemic.

The results for the euro zone are particularly promising. Firms in the bloc recorded their fastest rate of business expansion in 21 years, fueling hopes of a rapid economic rebound this summer, with the index rising to 60.6 in July from 59.5 in June. A reading above 50 indicates that a majority of companies reported an expansion in activity from the previous month.

Official second quarter GDP data released next week should confirm that the eurozone has already emerged from its double-dip recession, with PMI data suggesting further progress into the third quarter.

In contrast, the PMI reading for the UK showed a slowdown in the growth of economic activity, from 62.2 in June to 57.7 in July, as the increase in coronavirus infections “threw an increasingly dark shadow “over the country’s recovery. More encouragingly, the official June retail sales, which were also released today, revealed a surprise increase from May, but with an additional boost from the Euros football tournament. What’s more, a GfK consumer confidence survey suggests Britons’ optimism is back to pre-pandemic levels.

Business activity in the United States, although still expanding, showed a slowdown in growth rate similar to that of the UK, with the PMI falling from 63.7 to a four-month low of 59.7. Official second quarter GDP data is expected to be released next Thursday.

Inflationary pressures, supply chain problems and labor shortages are major sources of uncertainty for businesses in the three regions. Of particular concern for the United States, noted Chris Williamson, chief economist at IHS Markit, is that “this drop in confidence could translate into reduced spending, investment and hiring, adding to the possibility that growth slow down further in [the] months to come ”.

Mondial economy

Russia raised its key rate by 1 percentage point – its biggest increase in more than six years – in its latest attempt to curb rising inflation, which reached 6.5% in June – the highest level in five years. The country recovered from pandemic lockdowns faster than expected, with economic output returning to pre-pandemic levels in the second quarter.

FT editorial board said US President Joe Biden should keep Federal Reserve Jay Powell chair in place when his first term expires in February. He praised his determination to tackle the pandemic and prevent the downturn from becoming a financial and banking crisis as well. “Powell’s reappointment is such a clear case as if it ain’t broke don’t fix it,” the FT said.

European economic commentator Martin Sandbu discussed the different methods of Covid-19 test in the UK and in his native Norway talk about different approaches to capitalism. Like the humble car wash, they can either involve heavy use of a low productivity workforce (UK) or the more productive method of investing in new technology (Norway).

Company

the British “pingdemic” saga continued, with the government presenting a contingency plan to alleviate staff shortages in the food industry. The move came after more workers were told by the NHS Covid-19 app that they had come into contact with an infected person and needed to self-isolate. About 619,000 people were “pinted” in the week to July 15 and ministers urged the public not to remove the app from their phones. Here’s our assessment of how three key industries have been impacted: Retail, Hospitality, and Manufacturing.

Labor Day, the first Monday in September, long marked the end of summer in the United States. U.S. editor-in-chief Andrew Edgecliffe-Johnson examined how the spread of the Delta variant of the coronavirus has dampened the company’s hopes that the vacation could be followed by a mass return to the office.

Chart showing US research for "dress shirts"

american airlines return to profitability more quickly than their European counterparts thanks to government aid, a large internal market and a relatively rapid vaccination program. Three of the top four U.S. carriers reported second-quarter profit, but demand in Europe was hampered by higher rates of Covid-19 and fluctuating travel restrictions.

Markets

A split opened among decision-makers after the European Central Bank said after his last policy meeting that he would become more tolerant of inflation before raising interest rates. Malcolm Barr, head of Western European economics at JPMorgan, wrote in the FT that the Review of the ECB’s strategy was a missed opportunity. If “the ECB has the political tools to bring inflation back to its target, why doesn’t it deploy them? Barr asks.

Growing demand for electricity as economies reopen, alongside supply disruptions and a drought in China, has caused an increase in thermal coal price. Although renewable energy sources are growing, they will only be able to meet about half of global demand in 2021 and 2022, according to the International Energy Agency.

Line graph of Australian high energy thermal coal ($ per tonne) showing the value of the world's least popular commodities

American financial commentator Robert armstrong wonders in his newsletter Unhedged whether too much optimism about the “pent-up” demand that drives spending is not being incorporated into estimates of corporate earnings. “If buyers want to generate income, they have to buy much harder than before the crisis,” he writes.

Have your say

Suburb of hampshire comments on What will result from the disappearance of mass displacement?

My company is preparing to spend three days at the office, two at home. This will drastically reduce my travel time and allow more use of the amenities of the local village during the week.

However, I was disappointed, but not surprised, to find that the new “flexible subscription” is poorly designed. The ticket allows you to travel eight days over a period of 28 days (on average two days per week). If, however, you’re averaging three days a week, it’s cheaper to buy a full weekly or monthly subscription than to use the flexible subscription. The reason I’m not surprised is that this is another example of a government ad that generates good headlines, but in practice does not perform as advertised.

Final thought

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