After yesterday’s incredibly mixed manufacturing survey data, today’s Services sector data was just as Schizophrenic.
Markit’s Services Sector PMI survey missed expectations and dropped to 4-month lows as output, new orders, and employment growth all slowed notably.
Although still solid, Markit’s PMI suggests the rate of job creation dipped to a seven-month low in August. Firms commonly reported difficulties finding suitable candidates, while greater business requirements and a sustained rise in new orders led many to increase employment. Input prices paid by service sector firms continued to increase at a strong rate in August. The pace of inflation nonetheless softened to a five-month low.
ISM’s Services Sector survey tumbled in July and expectations were for a big rebound in August, and it did from 55.7 to 58.5 (just like its manufacturing cousin). New Orders accelerated according to ISM (slowed per PMI), Employment rose according to ISM (slowed according to PMI), and Export Orders soared according to ISM (slowed according to PMI).
So take your pick America – US Manufacturing and Services slumping together or rebounding aggressively…
Respondents were ebullient and thankful to government…
“Business for August is surprisingly higher for our company compared to last month and YOY [year over year]. Based on current trends on customer quote requests and conversions to orders, we are trending for this month to be the best August in the history of our company.” (Management of Companies & Support Services)
“Business activity is markedly higher now that the government is in the fourth quarter of its fiscal year and agencies need to obligate their fiscal year 2018 funds. Many contracts expiring in this time frame require renewal.” (Public Administration)
Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:
“The weaker PMI numbers indicate that the third quarter is unlikely to see the pace of economic growth match the 4.2% clip seen in the second quarter, though it’s clear that domestic demand remains strong, helping companies raise prices at a near-record rate.
Additionally Williamson notes,
“The survey data so far for the third quarter signal annualised GDP growth of just under 3.0%. However, further momentum was lost in August, and the weakest rise in new orders for goods and services for eight months suggests growth could wane further in September.
“Similarly, while the survey employment readings remain roughly consistent with a non-farm payroll gain of just under 200,000, the rate of job creation may likewise start to slow. Backlogs of work barely rose for a second successive month in August, indicating that existing operating capacity levels are broadly sufficient to cope with current demand growth.
“However, despite the signs of slower growth, companies continued to report strong pricing power, underscoring the on-going buoyancy of domestic demand in particular. Average prices charged for goods and services rose at a rate only slightly below July’s nine-year survey record high.”
And while US Composite PMI is still the highest of the majors, it is sliding fast…
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