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