UK and US private sector growth hit by Delta variant and shortages – as it happened

Graeme Wearden

from on 2021-08-23 16:19 (#5NN8P)

Rolling coverage of the latest economic and financial news

Latest: US PMI hits eight-month low
UK factory stock shortage worst since at least 1977
UK private sector growth hit six-month low in August
UK composite PMI fell to 55.3 in August, from 59.2 in July, showing slower growth
Firms report major problems with staff and material shortages

Earlier:

5.19pm BST

That's all for today - here's the main stories:

Growth across the UK economy has hit a six-month low, as supply problems and staff shortages hold back the recovery.

Britain's economic recovery from lockdown has slowed sharply in the past month despite the removal of most remaining pandemic restrictions, as businesses suffered the worst shortages of workers and materials in decades.

The latest snapshot from IHS Markit and the Chartered Institute of Procurement and Supply (Cips) showed that growth in private sector output slowed to a six-month low in August.

It is a classic double whammy. On the one hand, businesses are being forced to pay higher wages to plug labour shortages. On the other, demand is starting to ease. The economy will continue to grow at a fair lick in the third quarter of 2021 but at a much less rapid pace than the 4.8% seen in the second quarter.

That double whammy could easily become a triple whammy if the economy struggles to cope with the withdrawal of government support. Rishi Sunak has no intention of scrapping his plan to wind up the furlough scheme next month and sees no reason why he should, given record job vacancies.

BREAKING:

*S&P 500 RISES TO NEW RECORD, APPROACHING 4,500-LEVEL pic.twitter.com/aBPfA5VRB4

4.57pm BST

In the City, the FTSE 100 index has ended the day up 0.3%, lifted by the swirling speculation of a possible takeover bid for J Sainsbury.

The Footsie has closed 21 points higher at 7109 points, with supermarket chain Sainsbury's jumping 15% to end at 340p, a seven-year high.

We're starting off the week in a corrective manner, with the moves late last week being partially reversed as calm returns to the market.

Traders became far more risk averse last week, particularly on Thursday following the release of the Fed minutes a day earlier. Perhaps too much was read into them or maybe the selling was opportunistic, a little profit taking ahead of Jackson Hole, but the dips are being bought once more so the doom and gloom has passed fairly quickly.

THE MARKET'S FEAR IS LOSS OF CONTROL.

The market is more worried about the Fed making a mistake than the taper itself.

And that's fair. The Fed has made several mistakes in the past, and some have led to big market selloffs.

BUT.

This Fed has been doing its research.

That's why you hear Fed governors talking about tapering all the time, to the point where it drives you mad.

The Fed is being transparent at the risk of a few down days here and there.

Chances are this Fed will give us a one meeting heads up before it actually announces the taper.

That hasn't happened yet, so that puts us at least a few months away from it actually happening.

4.31pm BST

The International Monetary Fund's record $650bn injection of resources came into effect today, as it tried to help countries recover from the pandemic.

The new monetary reserves, known as special drawing rights, are being distributed to member states -- with managing director Kristalina Georgieva calling the move a significant shot in the arm" for global efforts to combat Covid-19.

The allocation is a significant shot in the arm for the world and, if used wisely, a unique opportunity to combat this unprecedented crisis."

Some 70% will go to the Group of 20 largest economies, against just 3% for low-income nations

As a result, of the $650bn, about $21bn will go to low-income countries and $212 billion to other emerging market and developing countries, without counting China, according to U.S. Treasury Department calculations.

The IMF's record $650 billion resource injection came into effect Monday, with Managing Director Kristalina Georgieva urging wealthy states to direct some of their portion to countries lacking the means to cope with the Covid crisis https://t.co/haxOBzh1AE

4.04pm BST

The pound is also gathering ground against the dollar.

Sterling has picked up a cent to $1.3720, as worries about an early stimulus tapering by the US Federal Reserve ease .

In typical fashion, the US dollar fell back on Monday as some of the risk aversion faded. The Japanese yen and Swiss franc were broadly weaker too. The dollar index is down almost 0.3% today, stepping back from Friday's 9-month peak.

With the week only just starting, it's too early to draw any conclusions about the latest dollar rally being over. But if the improvement in sentiment holds up, the only thing that will be able to put the dollar back on the front foot is if the Fed sends clear tapering signals at the Jackson Hole event.

3.48pm BST

US home sales have hit a four-month high, as strong demand and cheap borrowing keeps prices near record levels.

Existing homes sales rose 2% month-on-month in July, to a seasonally-adjusted annual rate of 5.99 million units, the National Association of Realtors reports.

Home sales increased for the second straight month in July.
Existing home sales rose 2% to a seasonally adjusted 5.99 million units in July, from a month earlier, according to the National Association of Realtors (NAR). June total units sold were also revised to 5.78 million..

..The results outpaced analyst expectations of a decline of 0.5% and 5.83 million units, according to Bloomberg consensus estimates.

3.39pm BST

US stocks have pushed a little higher on the news that private sector growth slowed sharply this month.

That may seem illogical - but investors will be calculating that a slowing economy might deter central bankers from slowing their stimulus programmes soon...

Nasdaq 100 $QQQ all-time high pic.twitter.com/DoYM1aVJXV

Weaker than expected US PMIs for August.

Meanwhile new record high for Nasdaq 100 #natch

3.16pm BST

Just in: Growth across America's private sector has slowed sharply this month to its weakest rate this year, as rising cases of the Delta variant, supply shortages and capacity pressures all hit the recovery.

That's according to the latest Flash U.S. Composite PMI from IHS Markit, which shows that growth has hit an eight-month low in August.

Material shortages, difficulties hiring new staff and the spread of the Delta variant were all highlighted as factors driving a steep accumulation of backlogs of work during August. The strong rise in outstanding business was only slightly below July's record high, and coincided with only a marginal upturn in employment.

Staffing numbers rose at the slowest rate since July 2020, often linked to difficulties finding staff.

U.S. private sector expansion slowed sharply in August, according to the latest flash #PMI data, as capacity constraints, material shortages and the spread of the Delta variant weighed on private sector output. Read more: https://t.co/opSzyAEFi3 pic.twitter.com/eS3Y4tfkSd

The expansion slowed sharply again in August as the spread of the Delta variant led to a weakening of demand growth, especially for consumer-facing services, and further frustrated firms' efforts to meet existing sales.

Not only have supply chain delays hit a new survey record high, but the August survey saw increasing frustrations in relation to hiring. Jobs growth waned to the lowest since July of last year as companies either failed to find suitable staff or existing workers switched jobs.

2.41pm BST

The US stock market has opened higher, as investors shake off last week's worries which hit share prices.

The main indices have all gained over 0.5% in early trading, with the Dow Jones industrial average up 230 points at 35,350.

Here's how the major U.S indexes opened trading today

Dow Jones $DJIA opened at $35,289.17 up 0.48%
S&P 500 $SPY opened at $4,462.30 up 0.46%
NASDAQ Composite $QQQ opened at $14,790.05 up 0.51%

U.S. markets open higher https://t.co/1Nv7V7lqP9 pic.twitter.com/j7TWO2vFqi

2.26pm BST

The owner of Liberty Steel is in talks with the US lender White Oak Global Advisors over a refinancing deal that could help end months of stop-start operations at UK steel plants.

GFG, the metals group run by the industrialist Sanjeev Gupta, has been looking for fresh finance since early March, when its key lender, Greensill Capital, collapsed into administration.

2.08pm BST

In the cryptocurrency space, bitcoin has risen over the $50,000 mark for the first time since May.

This morning's three-month high follows a strong recovery for bitcoin since mid-July, when it dipped to $30,000, more than 50% below April's record high.

Bitcoin tops $50,000 for the first time since May https://t.co/lMdebWEz1K pic.twitter.com/Dd1ionCTLD

Bitcoin has crossed the $50,000 mark for the first time in 3 months as enthusiasm about cryptocurrencies continues to rise. The $50,000 mark is a key psychological level for the digital coin and so we may see some resistance appear before any further bullish momentum can be achieved.

A pullback towards the $48,000 area would be the first sign of trouble but the positive trend isn't in any trouble as long as Bitcoin stays above its 200-day moving average at $45,750. Looking ahead, the key challenge for buyers will be to cement further gains towards $55,000 without losing momentum along the way."

1.35pm BST

Back in Europe, Germany's central bank has warned that the Delta variant could hit economic growth in Europe's largest economy this autumn.

Economic growth in Germany could miss projections this year and the resurgence of the coronavirus pandemic may put unexpected strain on the economy in the autumn, the Bundesbank said in a monthly report on Monday.

Europe's biggest economy is expected to grow by 3.7% this year and 5.2% in 2022 but the early weeks of the rebound were more timid than projected and that will likely weigh on the full-year figure as well, the Bundesbank said.

Good Morning from Germany where growth forecasts keep falling. Germany's rebound may be weaker than expected, Bundesbank warns: after activity in H1'21 disappointed, GDP growth in 2021 could turn out somewhat lower" than 3.7% forecast in June. Consensus forecasts dropped to 3.3% pic.twitter.com/cHxpaPMtBg

1.13pm BST

Pharmaceuticals news: Pfizer is acquiring cancer drugmaker Trillium Therapeutics, which is developing treatments to help the immune system identify tumour cells.

Trillium's portfolio includes biologics that are designed to enhance the ability of patients' innate immune system to detect and destroy cancer cells.

Its two lead molecules, TTI-622 and TTI-621, block the signal-regulatory protein (SIRP)-CD47 axis, which is emerging as a key immune checkpoint in hematological malignancies. TTI-622 and TTI-621 are novel, potentially best-in-class SIRP-Fc fusion proteins that are currently in Phase 1b/2 development across several indications, with a focus on hematological malignancies.

CD47 is a don't eat me" signal that blocks the ability of macrophages to phagocytose and destroy tumor cells. By blocking this don't eat me" signal with decoy receptors, we aim to unmask tumor cells and make them visible to the immune system.

Pfizer announces a deal to buy Trillium Therapeutics for $2.26 billion U.S. The cancer drug company which has operations in Cambridge, Massachusetts and Mississauga.
Trillium's share price has tripled in pre-market trading.

12.31pm BST

Back in the markets, shares in Sainsbury have now soared over 14% to a seven-year high, as the City responds to the Sunday Times's report that private equity firm Apollo was exploring a possible approach.

Here's the latest:

12.03pm BST

UK factories are suffering an unprecedented shortage of stocks, as the lack of electronics and plastic products hurts firms -- as concerns grows that growth has peaked.

The CBI's latest Industrial Trends survey shows that stock adequacy weakened to a new survey-record low (since April 1977) for the third consecutive month running, driven by the electronic engineering and plastic products sub-sectors.

Manufacturing activity remained strong this month, with total order books remaining firm and most sub-sectors reporting rising output. However, early signs from the data suggest that growth in activity may have peaked

It is notable that stock adequacy deteriorated to a new record low for the third consecutive month. Many firms are feeling the pinch from ongoing supply chain disruption, which also partly explains the continued strength in pricing pressures

UK #manufacturing output growth in the three months to August eased from last month's record pace but remained firm by historical standards. Looking ahead to the next three months, manufacturers expect output growth to pick up slightly pic.twitter.com/AgaeOlfdOh

Total order books remained strong, at a broadly similar position to last month. Meanwhile, export order books weakened somewhat from last month but still sit broadly in line with their long-run average pic.twitter.com/gDHeS7qdTV

Manufacturers also reported that stock adequacy worsened to its weakest on record (since April 1977), marking the third month in a row in which a new record-low outturn has been set pic.twitter.com/UF1DWk26zp

Expectations for output price growth over the next three months remained strong, close to the near-30 year high seen in June pic.twitter.com/Iod6HFJ9ko

11.34am BST

UK shopper numbers declined last week, as some unseasonally wet weather kept people away from the shops.

Retail data firm Springboard has reported that footfall across UK retail destinations fell by -1.7% in the seven days to Saturday 21st August, compared to the previous seven days.

Rain most days across all areas of the UK accompanied by cool temperatures led to footfall across UK retail destinations dropping from the week before, eradicating all of the uplift gained in the previous week.

As is usually the case when it rains, high streets fared worse than both the covered environments of shopping centres, and retail parks which are easy to access by car and have parking in close proximity to stores.

Footfall drops across UK retail destinations as wet weather dampens shopping demand!

For a more detailed breakdown of weekly footfall data across all destination types, subscribe to our weekly insights.https://t.co/bEFzyuQQjZ #analytics #retailinsights #data #covid19 pic.twitter.com/UmcCLsGGEh

11.23am BST

Shaftesbury, the central London landlord that owns parts of Chinatown, Soho and Covent Garden, has reported that Londoners and domestic tourists are returning in growing numbers, bringing footfall back to about half the level before the pandemic.

11.16am BST

UK food manufacturers are painfully aware of the shortage of workers in the UK.

Their labour crisis is so severe that the industry is pleading with the government to be able to call upon prisoners to help.

Much of the food industry is facing a recruitment crisis."

The advice we have received from the Home Office is that the UK's domestic labour force should take priority. However hard we and many of the members have tried, staffing remains a challenge."

10.54am BST

The chunky fall" in the UK's composite activity PMI this month suggests that the economy struggled to gain fresh momentum in August, says Kieran Tompkins of Capital Economics.

That's despite the apparent easing of the pingdemic" and the final relaxation of all domestic restrictions, he points out, adding:

Overall, the large fall in the composite PMI suggests that the economic recovery might be slowing a bit faster than we had thought. That poses a downside risk to our forecast for the economy to return to its pre-pandemic level by October.

Many sectors are reporting record high numbers of job vacancies, reflecting healthy demand, yet there are signs that some businesses are finding recruitment difficult. With supply chain disruptions also persisting inflationary pressures remain a concern for now despite the slowdown in CPI inflation in July.

The economy is in good shape heading into the autumn, though with some unknowns. The expiration of the furlough scheme, the prospect of another spike in Covid-19 cases during the winter and further disruption from fresh lockdowns overseas each present potential hurdles in the months to come."

While the pingdemic' situation seems to have improved, there are some signs that the initial boost to consumer spending coming from the reopening is fading. And businesses that are facing shortages in either goods or workers often have to react by paying more, increasing cost pressures.

The UK PMIs for both manufacturing and services had already started to drop last month, and they dipped further this month, but they remain well above the crucial 50 mark, meaning that the recovery continues. The services PMI dipped somewhat more than manufacturing, giving an early indication that some of the supply bottlenecks of semi-conductors and other goods could now be easing, while UK consumer demand and staffing in retail businesses continue to face challenges.

U.K. Aug. Flash
*Manufacturing PMI 60.1; Est 59.5 (5-month)
*Services PMI 55.5; Est 59.1 (6-month low)
*Composite PMI 55.3 Vs 59.2; Est 58.7 (6-month low)
*Link: https://t.co/lEmdHjElgW pic.twitter.com/KEAwBTncvz

10.37am BST

The worst shortages of staff and materials on record are mostly to blame for the abnormally large slowdown in overall activity" in the UK, says Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS).

Brock explains that August's growth slowdown suggests that the surge in growth in recent months can't last:

August offers a stark warning to the UK economy that the accelerated levels of growth we've seen earlier this summer are not sustainable....

Finding the right skills was difficult for businesses, meaning that job seekers had the pick of the bunch in terms of opportunities. The service sector was hiring at a brisker pace than any time in the past 25 years and stronger wage demands followed suit, which resulted in business costs climbing again.

It was also encouraging that export order growth picked up since July, as countries recovered at different speeds. However, it's likely that cautious consumers will continue to remain an obstacle for UK businesses until full confidence returns."

10.24am BST

There were widespread reports" from UK manufacturers that escalating shipping costs and shortages of raw materials led to intense price pressures this month, the PMI report shows.

While many service sector companies reported that staff shortages had constrained the recovery, as the reopening of the economy led to a jump in demand, pulling services growth down to a six-month low.

Firms in the residential property sector often cited the end of the full stamp duty holiday as a factor leading to lower business activity.

10.07am BST

These chart shows how UK company growth slowed rather rapidly this month... as delivery times for supplies slumped to levels only seen in the first lockdown in April 2020.

9.52am BST

Newsflash: The UK recovery has lost momentum this month as companies across the economy struggle with staff shortages caused by the pandemic, and the ongoing supply chain problems.

Growth across the UK private sector slowed to a six-month low in August, according to data firm IHS Markit's monthly survey of purchasing managers at UK firms.

Latest flash data for the #UK revealed a softer growth in business activity with the PMI at a 6-month low (Aug: 55.3 v Jul: 59.2). Staff and material shortages were again a key theme while inflationary pressures showed signs of easing. Read more: https://t.co/BlRGSsqsWC pic.twitter.com/y2BogINg4q

Weaker recoveries were seen in both the manufacturing and service sectors, with the latter recording the greatest loss of momentum since July.

Analysis of comments provided by survey respondents suggested that incidences of reduced output due to shortages of staff or materials were fourteen times higher than usual and the largest since the survey began in January 1998.

Although the PMI indicates that the economy continues to expand at a pace slightly above the pre-pandemic average, there are clear signs of the recovery losing momentum in the third quarter after a buoyant second quarter.

Despite COVID-19 containment measures easing to the lowest since the pandemic began, rising virus case numbers are deterring many forms of spending, notably by consumers, and have hit growth via worsening staff and supply shortages.

9.18am BST

Eurozone business activity remained strong this month as vaccination programmes helped firm to reopen, although supply chain problems continue to hit companies.

Data firm IHS Markit reports that eurozone business activity continued to grow at one of the strongest rates seen over the past two decades in August, with job creation sticking at July's 21-year high.

Employment growth across the #eurozone remained at a 21-year high in August, according to flash #PMI figures, while the expansion in output slowed amid a slight drop-off in manufacturing. Read more: https://t.co/onX1SPeJ3M pic.twitter.com/jWaPf7Ppu2

August flash data pointed to another solid increase in business activity across Germany with the #PMI at 60.6 (Jul: 62.4). Rising employment levels continued to support growth, but material shortages weighed slightly on manufacturing production. Read more: https://t.co/wnIwjs8yLQ pic.twitter.com/x3lyvYV17r

Although the spread of the Delta variant caused widespread problems across the region, curbing demand and causing further supply issues, firms benefited from virus containment measures easing to the lowest since the pandemic began.

Supply chain delays continue to wreak havoc, however, leaving companies frequently unable to meet demand and pushing firms' costs higher. These costs, combined with surging demand, led to another near-record increase in average selling prices for goods and services, though there are some welcome signs that these inflationary pressures may have peaked for now.

Encouragement comes from a second month of job creation at the strongest for 21 years, which reflects efforts by firms to boost operating capacity and meet demand, which should ultimately further help bring price pressures down.

The concern is that we are seeing some upward movement on wage growth as a result of the job market gain, which could feed through to higher inflation, and supply delays from Asia in particular look likely to persist for some time to come."

8.59am BST

Supply chain problems are also hitting Germany's factories, although growth remains strong.

IHS Markit reports that the German economy continues to grow strongly in August despite further constraints on manufacturing production.

#Germany's Manufacturing #PMI fell to 62.7 in August, a 6-month low. pic.twitter.com/piLCpouWdX

This is despite signs of a further slowdown in manufacturing, where production levels continue to be held back by supply bottlenecks and businesses remain under pressure from record cost increases. Services has taken over as the main growth driver, having followed up July's record expansion with another stellar performance in August, as demand across the sector continues to rebound.

Given the intense cost pressures facing businesses and reports from some of skill shortages, it's encouraging to see a continuation of the recent rapid recovery in employment levels as firms look to address capacity shortages. However, many manufacturers remain inhibited by a dearth of materials and components and supply delays, which are likely to remain constraining factors for months to come."

8.51am BST

Growth across France's private sector has slowed to a four-month low, but the economy remains in firm growth territory".

Despite some of the challenges businesses are facing on the supply side, it's encouraging to see PMI data consistently signalling robust expansion. Furthermore, given we're now midway through the third quarter, the survey data up to this point suggest we could see another decent outturn in the corresponding GDP figure.

There are, however, factors holding back growth to some extent. On top of the heavy supply chain issues, some survey respondents noted that there had been some adverse consequences on new business due to the pass sanitaire", requiring proof of a double vaccination or low risk of carrying COVID-19 infection.

8.36am BST

European stock markets have also opened higher, with France's CAC up 0.9% and Germany's DAX gaining 0.6%.

8.33am BST

In the City, the blue-chip FTSE 100 index has risen in early trading - lifted by a surge in supermarket chain J Sainsbury's shares.

The FTSE 100 is up 40 points, or 0.6%, at 7127 points, recovering some of last week's losses.

The US buyout firm Apollo is taking an exploratory" look at Sainsbury's, according to the Sunday Times. Apollo has been scouring the industry for targets after being outbid for Asda last year, it said.

One complication is that Apollo, which was originally in the running to buy Morrisons, has said it is considering teaming up with Fortress. Any involvement in buying Morrisons would make a move on Sainsbury's less likely, analysts said.

8.23am BST

After falling into a bear market last week, Hong Kong's Hang Seng index is having a better day.

On the pandemic, there have been further concerning developments from Australia and New Zealand over the weekend as they both face a major surge in cases that have raised questions about the sustainability of their zero-Covid strategies.

In New Zealand, the total number of community cases connected to the latest outbreak now stands at 107, with a further 35 cases reported this morning, and Prime Minister Ardern said that the nationwide lockdown would be extended until midnight on Friday, with Auckland's extended until midnight on August 31.

8.02am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Aussie PMI under delta pic.twitter.com/5zq5QRpEjX

Australia's private sector remained stuck in decline in August, according to the latest IHS Markit Flash Australia Composite PMI data, as activity remained heavily impacted by current mobility restrictions brought about by the spread of the COVID-19 Delta variant.

Not only were demand and business activity hit, employment conditions also deteriorated, with private sector staffing levels falling for the first time since October 2020. The labour market situation had been made worse on both ends of supply and demand amid the latest COVID-19 disruptions.

The one bright spot had been an improvement in the outlook amongst Australian private sector firms in August, with hopes of an improvement in the COVID-19 situation expected to spark an eventual rebound for the Australian economy."

Australia composite PMI down to 43.5

"New orders continued to decline...both output and outstanding work declined...firms also lowered their staffing levels for the first time since October 2020...the rate of input price inflation remained historically elevated..." pic.twitter.com/k2jIBzIx5M

Japan's private sector output fell at a sharper pace in August according to flash #PMI data. Weaker demand amid COVID-19 restrictions and sustained supply chain pressures were noted midway through the third quarter of the year. Read more: https://t.co/hEvXen242x pic.twitter.com/sF3SVrjLvA

The latest contraction was the quickest recorded since August 2020, while incoming business was reduced at the sharpest pace for seven months. Survey respondents commonly attributed weaker demand to ongoing COVID-19 restrictions, coupled with sustained supply chain pressures.

The decline in overall private sector activity was led by the larger services sector, where business activity fell for the nineteenth consecutive month and at the quickest pace since May 2020. While manufacturers pointed to continued output growth, the rate of expansion softened from July.

au Jibun Bank #Japan Aug. Flash
Mfg PMI 52.4 vs 53 in July (2-month low)
Services PMI 43.5 vs 47.4 in July (15-month low)
Composite PMI 45.9 vs 48.8 Prior (12-month low)
*Link: https://t.co/NraCMV5gGV pic.twitter.com/ZrapC3p0mW

Japan's private-sector activity hit by COVID-19 surge - PMI https://t.co/ELGAAb0MYq pic.twitter.com/s9t1bneDIj

In July German manufacturing rose to 65.9, and services jumped sharply to 61.8. It would be a surprise if either of these came in anywhere close this month given the various shutdowns of production announced by businesses because of supply chain disruptions and parts shortages. Forecasts are for a slowdown to 65 and 61 respectively, both of which come across as a tad optimistic.

Likewise, in France there has been increasing evidence that business activity has been declining with both manufacturing and services both slipping back in July from their June levels, and set to do so again in August to 57.2 and 56.3 respectively.

European Opening Calls:#FTSE 7123 +0.50%#DAX 15905 +0.61%#CAC 6672 +0.69%#AEX 776 +0.54%#MIB 26088 +0.66%#IBEX 8994 +0.88%#OMX 2371 +0.44%#STOXX 4173 +0.62%#IGOpeningCall

Energy update:
Oil - WTI (undated) 6322 +1.77%
Oil - Brent (undated) 6603 +1.79%
Natural Gas 3880 +0.52%
Heating Oil 19372 +1.46%
Gasoline 19332 +0.32%
London Gas Oil 550 +1.59%#Oil #Brent #WTI #OOTT

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