US Services Economy Crashes To 11-Month Lows (Or Surges To 6-Month Highs) – You Decide

Following mixed US manufacturing survey data earlier in the week (and disapopinting French/German PMIs), US Services were even more mixed with PMI printing at 6-month highs (new business expanding at its fastest in two years), and ISM collapsing to 11-month lows.

Despite the ongoing collapse in 'hard' economic data (against even weaker expectations), surveys of US Services employers by PMI are ebulient, but it seems the people that ISM are talking to are dysphoric…

ISM Respondents do not seem to be as exuberant as PMI respodents.

"A typical and expected midsummer slowdown in hiring activity by employers is causing a normal slowdown in business for this time of year. We expect a sharp ramp-up of business activity over the next three months." (Management of Companies & Support Services)

"Business volume slowed some in June." (Health Care & Social Assistance)

"Business in third quarter is looking up, but it may be delayed from slower than expected second quarter. The next couple of months will determine the outcome." (Professional, Scientific & Technical Services)

There is one thing to pay attention to however: Input costs paid by service providers continued to rise in July, thereby extending the trend seen every month since data collection began in October 2009.

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

“The PMI surveys have now shown growth accelerating for four consecutive months, meaning the economy started the third quarter with the strongest momentum since January.

"This is also a broad-based improvement, with the upturn in service sector activity coming on the heels of news of faster manufacturing growth.

“With inflows of new business into the vast service sector rising at the fastest rate for two years, the survey data support the view that the economy is on course for solid growth in the third quarter.

“Hiring meanwhile remains encouragingly buoyant, with the July PMI surveys indicating a payroll rise in the region of 200,000. Firms retained a strong hiring appetite in response to widespread optimism of future growth and the need to deal with rising backlogs of existing orders, underscoring the current positive mood in the business sector.”

As Williamson concludes, at current levels, the surveys are indicative of GDP rising at an annualised rate of approximately 2%, but if growth accelerates further in line with the upturn in new business, the third quarter could be even stronger.