The Non-manufacturing ISM survey showed that activity growth accelerated slightly in October, contrary to the manufacturing survey that reported last week slower activity growth. The headline, general business activity, index rose to 55.8 from 54.8 and compares to expectations for a decline to 54. The New orders subindex increased too, notably to 55.7 from 53.4, but most other indices were more downbeat: orders backlogs fell to a very low 43.5 from 47, employment dropped to 51.8 from 52.7 and supplier delivery eased to 50 from 50.5. So overall, the optimism coming from the headline index should be tempered somewhat, even if it is positive that activity is certainly not falling off a cliff.
UK: Awful data highlight downside risks economy
In the UK, the October services PMI pointed to a dramatic slowing in activity in the important services sector, as business activity slowed to its lowest level in more than four years. A similar decline was also noted in incoming new business, which suggests that the deterioration in sentiment is no temporary blip due to the recent financial turmoil. An additional worrying element for the MPC is that despite the slowing in activity the price components remain elevated and even rose slightly.
Besides the services PMI, the industrial production data also disappointed and fell in September on a monthly basis. On a quarterly basis, industrial production was unchanged in the third quarter compared with the second quarter. The recent decline in the manufacturing PMI suggests that also in the manufacturing sector activity is slowing down.
These recent data suggest that the recent financial turmoil is impacting the UK economy. However, given the still elevated price balances and rising energy and food prices, the Bank of England may still await some more evidence of the slowing before cutting interest rates.
