For the 5th month in a row since the record-breaking June highs that proved the recovery narrative was working, US Services PMI dropped. At 56.2 (missing expectations of 56.5), this is the lowest in 7 months. As Markit notes, this is a problem, since "whereas the manufacturing slowdown was largely linked to weaker global demand and a renewed fall in export orders, moderating growth in the service sector is a sign of domestic demand weakening." This points to a significant slowdown in GDP growth to a mere 2.5% from a hopeful 3.9% in Q3.
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Commenting on the PMI data, Chris Williamson, Chief Economist at Markit said:
“The final PMI data confirm earlier flash readings that the US economy is likely to have slowed further in the fourth quarter. GDP looks set to rise at an annualised rate of 2.5%, down from 3.9% in the third quarter.
“Whereas the manufacturing slowdown was largely linked to weaker global demand and a renewed fall in export orders, moderating growth in the service sector is a sign of domestic demand weakening.
“The concern is that, with new business across manufacturing and services collectively growing at a much reduced rate compared to the summer months, companies could become more hesitant in taking on staff unless demand picks up again soon.
"However, at present, the slowing is still only modest, and leaves the economy growing at its approximate long-term trend rate. Importantly, growth is also sufficiently strong to create new jobs in impressive numbers. The survey data remain consistent with another month of non-farm payrolls rising by at least 200,000 in November.
“Price pressures have meanwhile fallen, meaning policymakers can enjoy a ‘goldilocks’ scenario of robust growth and low inflation, providing greater leeway to hold off with raising interest rates.”
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Source: Markit [5]
