U.S. and European Economies Slowed by Delta Variant, Supply Chain Bottlenecks

Selina Johansson

The U.S. and European economies slowed in September as supply-chain bottlenecks and worries over the Delta variant weighed on businesses, adding to signs the global economy is experiencing a soft patch amid an uneven recovery, purchasing managers’ surveys showed.

Manufacturing and services businesses in both the U.S. and Eurozone reported slower growth in activity this month, although the pullback was more pronounced in Europe.

Forecasting firm IHS Markit said its index measuring U.S. business activity, based on surveys on purchasing managers, fell to 54.5 in September from 55.4 in August. That was the lowest level in a year, as activity at services businesses reached a 14-month low. A level above 50 points to an increase in activity, while a level below 50 indicates a contraction.

The Delta variant of Covid-19, which caused a summer surge in coronavirus cases in many parts of the U.S., weighed on activity at service-sector businesses this month, said Chris Williamson, IHS Markit’s chief business economist.

Service-sector purchasing managers reported a slower rise in new business and continued price pressures tied to higher costs for supplies and paying workers, IHS Markit said.

U.S. restaurants, airlines and other service-based businesses have reported a slowdown amid renewed government restrictions, such as mask mandates, and a downturn in consumer sentiment tied in part to the rise in infections. Hiring in the U.S. slowed sharply in August from earlier in the summer, with the leisure and hospitality industry showing no growth in employment.

The Delta variant of Covid-19 has weighed on the service-sector; a California restaurant in June.


frederic j. brown/Agence France-Presse/Getty Images

Still, the U.S. economy has shown signs of resilience, with retail sales rebounding in August. Weekly filings for unemployment claims, a proxy for layoffs, have also remained near pandemic lows, with the four-week moving average of initial claims at a pandemic low of 335,750 last week.

Gauges of business activity in the 19-nation eurozone recorded sharply slower growth in September in both manufacturing and services, extending a slowdown that began in August after activity in July hit a 21-year high, when widening vaccination campaigns allowed public health restrictions to be rolled back and economies to rev up.

IHS Markit said its index of eurozone activity fell to a five-month low of 56.1 in September from 59 in August. The fall was steeper than predicted. Economists polled by The Wall Street Journal had expected a reading of 58.5.

Both the U.S. and Eurozone surveys pointed to some bright spots. A measure of optimism at U.S. services businesses reached a three-month high, IHS Markit said, as purchasing managers anticipated a pickup in demand and an easing of the pandemic. While overall business activity at U.S. manufacturers slowed slightly this month amid supply-chain issues, new orders and hiring increased.

Covid-19’s Delta variant is proliferating world-wide threatening unvaccinated populations and economic recovery. WSJ breaks down events in key countries to explain why Delta spreads faster than previously detected strains. Composite: Sharon Shi

Meanwhile, the surveys signaled faster growth in Europe than the region normally experienced before the pandemic, suggesting a solid if slowing recovery.

The Organization for Economic Cooperation and Development, a Paris-based research body, said this week that the Delta variant of coronavirus has slowed but not derailed the global recovery and that any growth lost this year will likely be recouped in 2022.

Thursday’s surveys show manufacturing activity slowed in Europe as supply chain disruptions and rising prices for raw materials hurt factory output and lengthened order backlogs. Factories world-wide have been beset by spiraling shipping costs, rocketing energy prices and component shortages as the global economy struggles to meet surging demand. Differences in vaccination levels between advanced and emerging economies are contributing to the squeeze, economists say, because some economies are under tighter restrictions than others.

Activity in the European services sector also slowed, IHS Markit said, as consumer nerves over Delta dented spending after a summer rebound. The slowdown was less marked than in manufacturing, however.

Business activity in Germany slowed to a seven-month low and in France it slowed to its weakest pace in five months, IHS Markit said.

In the U.K., which isn’t in the eurozone and left the European Union Jan. 31 last year, also slowed in September. The slowdown was again led by manufacturing, IHS Markit said, as British companies were also hit by supply-chain disruptions.

Write to Jason Douglas at [email protected] and Amara Omeokwe at [email protected]

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