US Services Economy Slumps To 15-Month Low, Manufacturing Rebounds

Despite a resurgence in positve surprises in hard macro data, PMIs (and soft survey data) has been fading in recent months and Markit's preliminary December showed a notable divergence in the US economy as Manufacturing rebounded to 2017 highs and Servces slumped to 15-month lows.

Higher prices for raw materials resulted in the strongest rate of input cost inflation since December 2012. There were signs that manufacturers had absorbed part of the rise in average cost burdens, as highlighted by a slower increase in factory gate charges in December.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“The flash PMI surveys brought a mixed bag of news. While manufacturing is ending 2017 with the wind it its sails, the service sector is struggling in the doldrums by comparison.


“In manufacturing, faster output and order book growth encouraged firms to add factory workers at the fastest rate for over three years, painting a bright picture of the goods-producing sector expanding capacity in response to resurgent demand.


“In contrast, service sector activity grew at its weakest rate for over a year, taking job creation to its lowest since May.


“Similar divergences were seen in relation to future growth, with business expectations picking up in manufacturing to a near-two-year high but waning markedly in services to the lowest for one and a half years.


“With services representing a far greater portion of the economy than manufacturing, the overall picture is therefore one of the manufacturing sector’s exuberance being overshadowed by the gloomier service sector.

Most worrisome for the 3%-growth crowd is the tumble in the Compoisite PMI to 9-month lows - signaling notably below trend growth...

“Measured overall, the surveys point to the economy growing at a modest annualised rate of just over 2% in the fourth quarter.”