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Covid-19 Drags on Europe's Economies as U.S., Asia Recovery Continues — Update

By Gwynn Guilford and Paul Hannon 

U.S. services businesses, a key driver of economic growth, gained ground for the sixth straight month in November, adding to signs the recovery is continuing.

Surveys of purchasing managers released on Thursday showed a pickup in services activity in the U.S., where restrictions on businesses have been limited during a fresh wave of coronavirus infections, and in Asia, which there have been few cases.

Activity in Europe contracted, surveys showed. European governments put in place tough new restrictions on businesses and households in late October, measures that are now being eased.

Private data firm IHS Markit said on Thursday its U.S. services index was 58.4, the fastest uptick in activity since March 2015 and up from 56.9 the prior month. The Institute for Supply Management's services index -- which measures activity in industries such as restaurants, travel, health care, and real estate -- was 55.9 in November from 56.6 the prior month.

A reading above 50 indicates growth, while a level below 50 signals contraction.

"The recent improvement in demand and the brightening outlook encouraged firms to take on extra staff at a rate not previously seen since the survey began in 2009, underscoring how increased optimism is fueling investment and expansion," said Chris Williamson, chief business economist at IHS Markit.

Performance of U.S. service businesses in November fits with other signs that the economy is expanding, though at a slower pace. New applications for unemployment benefits, a proxy for layoffs, fell to 712,000 last week, the Labor Department said earlier today.

A Federal Reserve report Wednesday said the economy's recovery picked up this fall. And U.S. household spending grew 0.5% in October, down from 1.2% in September.

Europe appears set to end 2020 as a weak spot for the global economy, as business surveys indicate that service providers saw another decline in activity during November.

By contrast, some Asian countries have largely contained the pandemic, and are easing the less severe restrictions they retained. The result is that while Europe's largest economies are likely to contract in the final quarter of the year, the recovery in Asia's largest economies is set to continue.

IHS Markit Thursday said its Purchasing Managers Index for the eurozone's services sector fell to 41.7 in November from 46.9 in October, its lowest level since May.

While the recent surge of virus infections has been a setback in Europe, the increasingly likely prospect of an effective vaccine becoming widely available in 2021 has lifted spirits, with service providers reporting that they are more confident about the future than in recent months.

There are also signs that consumers are willing to spend, if they are allowed to or aren't fearful of infection. Retail sales in the eurozone were 1.5% higher in October than in September, and up 4.3% from the same month of 2019, the European Union's statistics agency said Thursday. Purchases of electrical goods and furniture were again strong, and 11.5% higher than in October 2019.

Eurozone service providers said they continued to cut jobs in November, a sign of continued wariness. By contrast, their counterparts in China and India added to their payrolls as activity continued to increase at a rapid pace.

China's services PMI rose to 57.8 in November from 56.8, reaching the second-highest level in a decade. Confident in their prospects, the country's service providers created new jobs at the fastest pace in a decade.

India's service providers hired additional workers for the first month in nine months, as the country's services PMI edged down to 53.7 from 54.1. Economists expect its recovery to continue into next year.

"The economy should continue to rebound over the coming months as Covid-19 restrictions gradually get scaled back," said Shilan Shah, an economist at Capital Economics. "Indeed, fears that the Diwali celebrations would lead to a renewed surge in virus cases have not been realized."

Write to Gwynn Guilford at gwynn.guilford@wsj.com and Paul Hannon at paul.hannon@wsj.com

 

(END) Dow Jones Newswires

December 03, 2020 12:02 ET (17:02 GMT)

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