Manufacturing Recession Spills Over Into Services After Dismal PMI, ISM Data

Tyler Durden's picture

In the words of Markit's chief economist, "the US upturn has lost substantial momentum over the past two months," as the golden child of any current bullish narrative - the Services economy - drops to its weakest since October 2013 (PMI 53.2, missing expectations). Plunging backlogs suggest hiring will slow notably and then ISM Services hit at a 23-month low, plunging back towards manufacturing's weakness, with employmenmt at its weakest sicne April 2014 and unadjusted new orders at their weakest since Jan 2014.

Services PMI plunges back towards Manufacturing..

 

Troubling: the New Orders tumbled not only on a seasonally adjusted basis (because for some reason one needs to adjust sentiment surveys), but worse, on an unadjusted basis the 52.5 was barely above contraction territory and the lowest since January 2014.

Markit commentary is dismal...

Slower service sector activity, combined with subdued manufacturing growth, means January’s expansion was the weakest seen since October 2012 with the sole exception of October 2013, when business was affected by the government shutdown.

 

...backlogs of uncompleted work have been falling in recent months, which usually means that such strong hiring is unlikely to persist...

 

While the first quarter may see a rebound in GDP due to technical factors such as an inventory adjustment and weather-related variations, the survey data paint a darker underlying picture of business conditions.

And then ISM Services hit... tumbling to 23-month lows. The decoupling is over...

 

With new orders ane employment plunging...

 

Respondents are not exuberant:

We have experienced a slight increase in business activity since the start of the new year. Our new job orders have increased about 10 percent and the job awards about 12 percent." (Professional, Scientific & Technical Services)

 

"Healthcare requirements in several states changing, which will [affect] our business directly." (Health Care & Social Assistance)

 

"Research funding expected to increase during 2016 and will result in higher employment when compared to calendar year 2015." (Educational Services)

 

"Protein commodities all lower due to strong U.S. dollar. Trade imbalance in exports and embargos with certain foreign nations." (Accommodation & Food Services)

 

"Sales have improved. We are feeling more optimism, but remain concerned about the impact of global unrest." (Retail Trade)

 

"Watching economic slowing in other sectors, but not affected yet." (Management of Companies & Support Services)

 

"We continue to see record low key commodity prices driving product cost down. Record low oil prices are putting extreme pressure on exchange rates for key export markets Canada and Mexico. Falling prices [are] pushing margins down as many are forced to drop prices to meet the competition. Extreme weather conditions this season are adding additional challenge[s] to both retail and wholesale sales volume regionally." (Wholesale Trade)

*  *  *

So - after all is said and done - we were right: It's noit "decoupled" its lagging... and now the pain comes as the only cylinder still firing in the US economy just blew a gasket.

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This is it's picture

Huh...what upturn?

two hoots's picture

WTF: 2 months ago?  That is a Fed cover story. 

sudzee's picture

Canada prices dropping like a rock in the last 2 weeks. True deflation is here and Feb retail sales numbers will reflect that.

 

Chuckster's picture

The concept that the USA can economically positive while not producing anything of value was idiotic from day one.  What collage professor dreamed this up in the first place.  He should share in Oby's Nobel prize.

two hoots's picture

 

A Facebook in every pot,  just needs a little salt.

 

FreedomGuy's picture

Anyone else wearing out on the perma-bulls? Honestly, they are no better than real estate agents any more. Real estate agents have only two predctions: 1. Home prices are going up! 2. Home prices are about to go up!

Perma-bulls: 1. The market is going up! 2. The market is about to go up!

Maybe they work two jobs.

corporatewhore's picture

Real estate agents are like financial planners.

They all drive ridiculously fancy cars (supposedly to freight their buyers).  They all live in overpriced homes in overpriced neighborhoods.  They always finance their homes with some scheme (like no doc loans, no dti loans).

They open closet doors.  Remind you of the number of bedrooms.  And bathrooms.  Tell you if it's an eat in kitchen.

They never tell you the basment floods.  Termites.  roof leaks.  tear down

They lie

azusgm's picture

Our school board sports one RE broker and a retail stock broker. The school district just passed a bond several months ago to replace the junior high and all but one of the elementary schools. The construction timeline calls for all of the new buildings to be ready for occupation in July 2017. The new buildings are all too large for any of our local contractors to be able to obtain the performance bonds required to qualify to bid. Men are losing their jobs here, but few will be able to work on these schools. Maybe the $109 million in new debt will prove to be a stimulus for Burger King and Whataburger and the convenience stores. Maybe the commuting workers will buy some beef jerky when they fill up their trucks before they make that 70-mile drive home in the evenings.

The board knew. I told them repeatedly and publicly. They went ahead anyway. The realtors were all for it.

corporatewhore's picture

follow the money.  Cui bono--who benefits?

Urban Roman's picture

A serious question for knowledgeable fight club members:

For how long will the inverse-leverage mechanisms of ETFs like SDS, SPXU, &c work? Obviously, the fund can't go to infinity if the allegedly underlying security goes to zero

gaoptimize's picture

Get ready to put on your BDIY 300 hats.

azusgm's picture

For a clearer view of what is happening, especially in a company that is sensitive to the oil patch, one only has to look at US Steel (X). US Steel owns that used to be Lone Star Steel, a mainstay tubular products mill near here that has manufactured drilling pipe for a long, long time. There is talk that Lone Star Steel could be idled if things don't turn around soon.

http://www.news-journal.com/news/2016/jan/20/layoff-could-shut-lone-star...

That steel mill has been one of the sources in this area for decent manufacturing jobs for decades. It has been idled before. When the steel mill goes down or when there was a strike when I was in high school, the economic effects were felt for miles around.

Lone Star, Texas is one of the towns that lost its new Wal-Mart neighborhood store last week.

Omen IV's picture

The US Steel seamless pipe mills are already down in major way with massive layoffs - the ERW mill at Lone Star inevitably will go down as it did in 86'.

The inventories are huge in Houston and N.O. - no drilling until the BK's clear - pay the banks so they dont have to default and reclassify the loans is the strategy - but this will lapse by June

Primary Steel is going to be a disaster as soon as the auto's drop as well and then construction follows  - three legs of the stool.

 

Obama has been the biggest fuck up in US history and the people dont even begin to understand how bad he is

azusgm's picture

I don't see how Lone Star Steel can do business except on a cash up front basis until this is over. That assumes the drilling bust will end before Lone Star Steel does.

Bobbyrib's picture

"Obama has been the biggest fuck up in US history and the people dont even begin to understand how bad he is"

 

If we had McCain/Romney, we wouldn't be in this mess.

https://www.youtube.com/watch?v=4v7XXSt9XRM

https://www.youtube.com/watch?v=FlcngdW2Ju4