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Today’s economic data docket was full of purchasing managers’ indices (PMIs) from across the globe. These figures, while still preliminary, offer the first glance of business activity in the month of May. Broadly speaking, the numbers were better than expected. Importantly, while the indices suggest continued contraction (defined as a reading below 50), they began signaling a turning point in many of the world’s largest economies.
Service sector activity in the Eurozone improved in May with the index rising to 28.7 from 12.0 in April. Manufacturing also fared better in the common currency area, rising from 33.4 in April to 39.5 this month. The UK economy looks to have turned the corner with the services PMI more than doubling to 27.8, while the manufacturing index rose 8 points to 40.6.
The numbers were even better on this side of the pond. The US services PMI rose more than 10 points to 36.9 in May while the manufacturing index increased to 39.8. These figures are consistent with a moderate pace of contraction and improved from the sub-25 point range not typically seen during typical recessions.
In other news, US existing home sales fell by 17.8 percent in April to 4.33M (annualized) as the economy shut down. In addition, while initial jobless claims fell 250 thousand to 2.44 million last week, continuing claims increased, rising 2.5 million to over 25 million in the prior week (data delayed by one week).
The Canadian consisted of the release by Stats Can the new housing price index, which remained flat in April, and an unofficial jobs report from ADP for May. The latter surprised to the downside, showing a decline of 226.7k positions, and suggesting a weak jobs report in Canada if correct. The ADP reports have not garnered much attention in the US given its poor performance in predicting official figures, so we suggest taking it with a grain of salt until it establishes a record of accomplishment.
Rising unemployment and income reductions, related to the economic shutdown, are expected to hit Canada’s housing market, according to the Canadian Mortgage and Housing Corporation (CMHC). The quasi-government organization expects prices of residential real estate prices to fall by 9 to 18 percent in Canada this year. While prices are forecast to recover, the recovery will be prolonged by an alarming level of leverage amongst Canadian households, which the CMHC expects to reach 2.3 times of household income this year.
Craig Alexander is the first Chief Economist at Deloitte Canada. He has over twenty years of experience in the private sector as a senior executive and leading economist in applied economics and forecasting. He performed macroeconomic research, regional and sector analysis, and fiscal market forecasting and modelling. Craig is a passionate public speaker and holds a graduate degree in Economics from the University of Toronto.