Service Sector Growth Weakest Since 2009; Markit Economist Estimates 0.7% GDP

By: Mike Shedlock | Wed, May 25, 2016
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If the US economy is ready for rate hikes starting June, you certainly would not ascertain that fact from the service sector PMI.

Today the flash reading shows service growth is the weakest since 2009, barely above contraction.

The Markit Flash U.S. Services PMI™ shows "Weak service sector growth persists in May, while business optimism eases to its lowest for over six-and-a-half years".


Key Points


Markit PMI Service Sector Activity

Markit PMI Service Sector Activity

U.S. service providers indicated a sustained upturn in overall business activity during May, but the rate of expansion was only marginal and the weakest for three months. Survey respondents cited relatively subdued client demand and less favourable domestic economic conditions as key factors weighing on business activity in May.

The seasonally adjusted Markit Flash U.S. Services PMI™ Business Activity Index registered 51.2 in May, to remain above the crucial 50.0 no-change value for the third consecutive month. However, the index was down from 52.8 in April and much weaker than the long-run survey average (55.6).

In line with the trend for business activity, service providers also recorded a renewed slowdown in growth of incoming new work during May. The latest expansion of new business intakes was only modest and one of the weakest recorded since the survey began in late-2009. Some firms commented on a cyclical slowdown in investment spending and continued unwillingness among clients to commit to new projects.

Subdued demand also contributed to another reduction in backlogs of work across the service economy, with the rate of decline accelerating to its fastest for just over two years. At the same time, payroll numbers increased only marginally in May, which some firms attributed to heightened uncertainty about the outlook for client spending. Jobs growth has now slowed in three of the past four months, with the latest upturn the weakest since December 2014.


Markit US Composite PMI

Markit US Composite PMI and US GDP

The Markit composite PMI is a blend of the service PMI and the manufacturing PMI. It tracks GDP nicely.

Please see US Manufacturing PMI Declines First Time Since September 2009 for the latest manufacturing PMI numbers.


Comments from Chris Williamson, Chief Economist at Markit


2nd Quarter GDP Estimates

  1. Atlanta Fed: 2.5% - updated tomorrow
  2. New York Fed: 1.8% - updated Friday
  3. Markit: 0.7% - updated today

I expect both the Fed models will jump tomorrow because of the Head-Shaking Increase in New Home Sales on May 24.

However, gaming the competing Fed models has been more than a bit problematic. For discussion, please see GDPNow 2.5%, NY Fed Nowcast 1.7%; Huge Discrepancies: Why?.

I have had talks with researchers from the Atlanta Fed and have them scheduled with the New York Fed. I expect to have an update later this week or next.

 


 

Mike Shedlock

Author: Mike Shedlock

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Michael "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com/ to learn more about wealth management for investors seeking strong performance with low volatility.

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