By Paul Hannon
Factories across the globe bounced back strongly in October, as manufacturers hired more people and ramped up production of consumer goods in hot demand despite rising coronavirus infections.
Fresh surveys of purchasing managers for manufacturers showed a continuing divide between companies that are making products -- from cars to electronics -- and companies providing face-to-face services that people are shunning.
The surveys released Monday indicated that the manufacturing sector continued to revive as the fourth quarter began, especially in global powerhouses such as the U.S. and Germany.
The Institute for Supply Management said its purchasing managers index rose to 59.3 in October from 55.4 in September, the sixth straight month of expansion. Firms reported a surge in new orders as customer inventories shrank. Supply-chain problems continued to constrain production but at a slower rate, the report said.
Firms also reported increased hiring for the first time in 14 months.
"The sentiment is still very strong," said Timothy Fiore, who runs the ISM's manufacturing survey. "The fact that the panelists are primarily hiring is all very positive."
A reading above 50.0 indicates that activity is increasing, while a reading below points to a decline in activity.
Data firm IHS Markit, in a separate survey Monday, said its PMI for the U.S. rose to 53.4 in October from 53.2 in September, driven by a pickup in new orders. Businesses said they were optimistic about future prospects even though they remained concerned about the pandemic.
Figures released over recent weeks show that the global economy came back strongly in the three months through September from the huge declines in output recorded in the second quarter, while not making up all of the losses suffered during the most stringent period of lockdown in most countries.
Over recent months, manufacturing output has been aided across the world by the strength of household demand for goods, in contrast to weak demand for services that require proximity to other people.
In its breakdown of third-quarter activity Thursday, the U.S. Commerce Department said household consumption of goods was up 6.9% in the third quarter from the previous year, while consumption of services was down 7.2%.
"It's very encouraging to see manufacturing expand at a very robust pace, but this momentum cannot last indefinitely, particularly without the support of fiscal relief," said Oren Klachkin, lead U.S. economist at Oxford Economics in a note to clients. "Looking ahead, we expect manufacturing's recovery to shift into a lower gear, constrained by the virus' recent resurgence and less generous fiscal support."
In Europe, IHS Markit said its PMI for the eurozone rose to 54.8 in October from 53.7 in September, reaching a 27-month high. Germany, the currency area's exporting powerhouse, reported the biggest rise in activity since March 2018, while new orders posted the largest increase since the survey of purchasing managers began in 1996.
In many countries, factories cut jobs in a sign that they are far from confident the recovery will continue into 2021. But there was also some fresh hiring after months of job cuts, with factories in China, Vietnam, Turkey, Spain, Italy and the Czech Republic reporting a rise in employment.
In Asia, factories in Thailand and South Korea reported an increase in activity for the first month this year, which in the latter was aided by a first rise in export orders since January.
But with new restrictions being put in place to combat rising infections in some parts of the world, the pace of the economic recovery is expected to slow significantly during the final three months of the year.
"Going forward, much will naturally depend on the extent to which the economy can remain open and functioning in the face of rising virus case numbers," said Chris Williamson, chief business economist at IHS Markit.
The October surveys of purchasing managers suggest that boost may be fading, particularly in Europe. IHS Markit said makers of business equipment and machinery had fared better than makers of consumer goods for the month. "There seems to have been a good deal of expenditure switching away from consumption of certain services towards goods," wrote Erik F. Nielsen, chief economist at UniCredit Bank, in a note to clients.
Businesses in the U.S. are also wary about the continuing uncertainty surrounding the election. Mr. Fiore said he expected the pace of expansion to slow in November before picking up again in December.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
11-02-20 1122ET
