Following last week's disappointing manufacturing PMI [4], today it was Markit's turn to report the June Service PMI, which just came out at 54.8, just under the 54.9 expected, down from 56.0 in May and the lowest reading since January. Additionally, job creation eased to a three-month low while input cost inflation reaches its highest since October 2013. In other words, more bad news for future job prospects and margins.
[5]
From the report:
The seasonally adjusted final Markit U.S. Composite PMI™ Output Index
(covering manufacturing and services) posted 54.6 in June, down from
56.0 in May and the lowest reading since January. A softer overall
increase in U.S. private sector business activity reflected weaker
growth contributions from both services activity (54.8 in June, down
from 56.2 in May) and manufacturing output (53.9, down from 55.2).
Adjusted for seasonal influences, the final Markit U.S. Services Business Activity Index registered 54.8 in June, down from 56.2 in May but above the neutral 50.0 threshold for the twentieth successive month. The latest reading pointed to the least marked pace of expansion since January, although the index was only slightly below the average seen since the survey began in late-2009 (55.8).
More on the bad news in the report:
Despite an upturn in new business growth, the latest survey pointed to a reduction in backlogs of work across the service economy for the first time since July 2014. Anecdotal evidence highlighted that ongoing company expansion plans and robust job hiring patterns had contributed to reduced volumes of unfinished work. That said, the rate of employment growth moderated for the first time in 2015 to date and was the weakest since March.
And even more bad news for jobs:
Some service providers noted that reduced optimism regarding the year-ahead business outlook had led to softer rises in payroll numbers at their units. Moreover, the latest survey indicated that the balance of service sector firms expecting an increase in activity over the next 12 months was the second-lowest since July 2014
The dour assessment came from Markit's Chris Williamson who still maintains his 3% Q2 GDP forecast but adds that "although still signalling moderate growth in June, the manufacturing and service sector surveys indicate that the rate of economic expansion has slowed markedly since the start of the quarter, when business was boosted by a rebound from weather related weakness. The loss of growth momentum seen in the surveys means GDP growth could slacken off again in the third quarter and hiring could likewise ease off."
In conclusion, Markit joins the IMF in once again beckoning the Fed to delay rate hikes:
“Fed talk will most likely continue to prepare the ground for rate hikes later this year, but policymakers will want to see firmer evidence that the economy retains healthy growth momentum before taking the plunge and hiking interest rates, especially given ongoing disappointing pay growth and benign inflation.”
Because clearly 6 years after the "recession ended", the only thing preventing the economy from blasting off into escape velocity is the difference between 0.00% and 0.25% fed funds rate.
