Globally, the all-industry PMI edged back from its all-time high in May, with declines in both the services and manufacturing output indices. At 56.6, the all-industry output PMI is consistent with 4% annual growth in global GDP.

While the decline in the manufacturing PMI is consistent with ongoing bottleneck pressures in the goods sector, the pullback in services is more surprising, given that this sector is expected to open up rapidly during the middle quarters of the year. The loss of momentum in the all-industry production PMI for June is reflected in signs of some slowing in demand.

Despite the setback in June, PMI levels remain extremely high and still point to strong gains in economic activity. The same can be said of the new orders component. Looking ahead, the recovery is expected to accelerate in 2H21 as the headwinds from the pandemic subside and activity in the services sector normalizes, aided by a rebound across Europe that complements the continued strong growth in the U.S.

There are still better days ahead… Future output indices for both the manufacturing sector and the services sector rose from already high levels, supporting the view that June’s setback is a temporary pause rather than a sign of a loss of underlying momentum.

Growth where it’s needed most… The decline in June’s PMIs is largely due to drops in the U.S. (from record highs to a still-elevated level) and China. By contrast, all signs continue to point to a European boom. The PMI for all sectors in the eurozone built on its strong gain in May and stood just below its all-time high. At the same time, the PMI for the UK’s overall manufacturing sector declined but remained extremely high, above 60.

 …and in the sectors where it is needed most. The recovery has been characterized by an excessive rebound in the goods sector, which has been more than offset by a still-depressed services sector, particularly for consumer-related services such as travel, entertainment, and restaurants. It is therefore encouraging that the decline in the global services PMI is largely due to a sharp drop in financial services. In contrast, the consumer services PMI, which rose in May, climbed even further in June.