What's going on?
Wednesday saw the world’s services industries (think: whatever happens outside factories) provide updates on their March activity. They made for gloomy reading in parts of Europe, but were more upbeat in the US and China…
What does this mean?
Surveys of the sector’s activity levels are particularly closely watched in the UK, where services are responsible for 80% of the economy (and 91.5% of London jobs). There, activity declined last month for the first time in nearly three years: as with the country’s construction sector, customers delayed spending amid ongoing political uncertainty. And in France, where services are equally as important, continued protest-related disruption led to renewed shrinkage in March.
China, by contrast, had a happier time: government support kicked in last month, helping its services sector expand by the most in over a year. And data also showed the US services industry growing more than forecast, albeit at a slower pace than in February.
Why should I care?
For markets: China’s recovery appears underway.
Where services data goes, economic growth tends to follow – especially in “developed” economies like the US and UK. China is trying to shift its own “emerging” economy’s reliance on manufacturing towards a greater contribution from services – currently only 40%. While the country’s government is spending big on plugging the gap between the old-school Chinese economy and its sleek, modern future, a services resurgence bodes well – perhaps encouraging investors to buy Chinese stocks on Wednesday, as well as those of global trading partners which may stand to benefit.
The bigger picture: Retail’s tail is wagging.
Retail sales are another telling indicator of an economy’s health. Data released on Wednesday showed that eurozone sales in February exceeded economists’ predictions – with even Germany, the region’s recent laggard, posting a strong month. US retail sales released earlier this week surprisingly fell in February – although January’s data was simultaneously revised higher, suggesting the country’s economy is still stable.