June showed a marked slowdown in business activity in the US private sector, bringing worry to some analysts and investors.
Market research group ISH Markit published a report saying that its flash services purchasing managers’ index (PMI) dropped to 53.0 during June. May’s PMI was 53.6. June’s figure was a three-month low.
Analyst had been expecting a services PMI of 53.7, an indication of a stronger economy.
Since the service sector comprises about 80% of the US economy the services PMI data is a key for understanding economic growth.
The manufacturing PMI, according to Markit, also fell in June, from 52.7 in May to 52.1 this past month. Analysts were also expecting that PMI to be 53.0.
PMI values above 50 represent a growing economy, while figures below 50 indicate a shrinking economy. The overall PMI of services and manufacturing together fell to 53.0 in June from May’s value of 53.6. However, new orders climbed at their fastest rate in five months, leaving room for optimism about the US economy.
Chris Williamson of HIS Markit said that although it is likely that growth will be higher in the second quarter than it was in the first, “the relatively subdued PMI readings suggest there are some downside risks to the extent to which GDP will rebound.”
In November, the Chinese factory sector shrank more than in any month during the last two and a half years. This decline was caused by china’s domestic economic weakness according to a PMI Survey. The survey determines the HSBC purchasing managers index which showed a rapid decline from 51 in October to 48 in November. The PMI measures China’s industrial output which was the lowest it has been since March 2009. A score of 50 divides between the industrial sectors expansion and contraction.
Beijing has already publicized steps to help small businesses. Meanwhile, in china business is feeling the stress. Many businesses are trying to get new markets and to modernize their production processes so that they will be able to compete.
“Time is pressing. We have to invest more in technology and innovation to make our goods more competitive in the global market,” said Zhou Haichang, president of the Guoguang Electric Co Ltd. “This is the only way out, for Guoguang and most exporters.”
Zhou Jianqun, the general manager of Guoguang Electric, said, “Because of currency appreciation, nobody wants to make and accept long-term orders. I know some small industrial players have died out, as they were incapable of innovation, and many others are very anxious.”
Wang Hu, an economist at the Guotai Junan Securities in Shanghai, believes that by January there could well be decline in the Chinese bank reserve requirements, as Chin’s economy weakens.
For many Chinese companies it will be sink or swim. Companies that can improve, innovate and grow have a chance to succeed. Those that can’t will probably fall by the wayside. In the end, China will be stronger.
This highly volatile market is not a safe havens by any means, and fixed income investments yield very little. In this situation, one might be wise to take some moderate risks and examine equities. Equities which offer both growth prospects and dividends with help to stabilize portfolios.
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