On many days there are no economic reports. On some days, like today, there are many reports.
Rather than parrot mainstream media, I like to comment on the reports, dive into the details, and compare reports when applicable. This takes a bit of extra time.
Let's compare the Non-Manufacturing (Services) ISM report to the Markit Services PMI report, both out this morning.
|Index||September||August||PP Change||Direction||Rate of Change||Trend in Months|
|Business Activity / Production||60.3||51.8||8.5||growing||Faster||86|
|Backlog of Orders||52.0||49.5||2.5||Growing||From Contracting||1|
|New Export Orders||56.5||46.5||10.0||Growing||From Contracting||1|
|Inventory Sentiment||64.5||64.0||0.5||Too High||Faster||232|
That looks like an exceptionally good report. But is it believable? Let's see what Markit has to say.
Markit Services PMI
- Service sector activity rises at fastest pace since April...
- ...despite softer upturn in new work during September
- Employment growth eases to weakest since March 2013
U.S. service providers indicated an upturn in business activity growth from the six-month low recorded during August. Nonetheless, the pace of expansion remained modest and softer than its post-crisis trend, largely reflecting subdued new business gains in recent months. The latest survey highlighted that new work increased at the weakest rate since May, which contributed to another moderation in staff hiring across the service economy. The rise in payroll numbers during September was only marginal and the slowest seen for three-and-a-half years.
On average in the third quarter, the headline index posted 51.5, little-changed from 51.8 in Q2. Companies reporting a rise in business activity suggested that new product launches and the completion of unfinished work had helped to offset subdued underlying new order growth.
Volumes of new work received by service providers in September increased only moderately since the previous month. Moreover, the rate of new business growth eased to its joint-slowest since the post-crisis low recorded in March.
Anecdotal evidence suggested that generally subdued domestic economic conditions and uncertainty ahead of the presidential election had continued to act as headwinds to client spending.
Survey respondents cited fragile economic conditions, some noted hopes of a rebound in client spending after the election. Meanwhile, latest data showed that input cost inflation eased to its slowest since February 2015. This resulted in the weakest pace of output charge inflation for five months in September.
Comments from Chris Williamson, Markit Chief Business Economist
- "Coming hard on the heels of the IMF's downgrade to the US economic outlook, the upturn in the PMI is a welcome development and suggests that the pace of economic growth gained some momentum in September. However, take a longer look and it's clear that this is by no means a robust upturn."
- "Even with the latest increase the surveys are indicating that the economy is growing at an annualized rate of only 1%."
- "The survey responses reveal that a heightened degree of political uncertainty is subduing the economy, manifesting itself in particular in a marked slowdown in corporate hiring. Across both manufacturing and services the surveys point to the smallest monthly gain in jobs since April 2010, consistent with a mere 115,000 rise in non-farm payrolls."
- "Business optimism about the year ahead is at one of the lowest levels seen since the global financial crisis. The surveys therefore add ammunition to those arguing for the Fed to hold off with hiking interest rates again, at least until the dust settles after the election."
Markit vs. ISM
ISM provides a table that I manually input into Excel to create the HTML table shown at the top of this article. I like that table, but ISM provides no useful comments as does Markit.
Watching both reports now for quite some time, the ISM reports are generally more optimistic, sometimes far more optimistic than Markit. That's curious, because Markit and ISM should be covering the same companies. Variations ought to be random and small, not one-sided and large.
Judging from reported GDP as well as actual economic reports on manufacturing, Markit has been more aligned with actual incoming data than has ISM.
Chris Williamson stuck his neck out last quarter with a 1.0% GDP forecast. ISM does not provide a specific estimate based on its data. Last quarter, Williamson beat the economic consensus by a mile.
Moreover, Williamson has had a 1% economic forecast for 3rd quarter for quite some time. Meanwhile, the GDPNow forecast which hit a high of 3.8% on August 5, has plunged like a rock to 2.2%.
Judging from the trends of actual data, Markit seems to have the better case right now as to which report is more believable.
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