Wall Street Sees No Multiple Expansion In 2020

The November Markit services PMI rose unlike the ISM services PMI. However, the ISM PMI is still higher. Broadly, the Markit reports make it confusing to determine what drove the 2019 slowdown. The ISM reports clearly show the manufacturing sector underperforming, similar to manufacturing production in the industrial production report. The ISM manufacturing PMI also fell below 50. The Markit manufacturing PMI never fell below 50 and its services PMI has been below the manufacturing PMI a few times this year. It makes sense for manufacturing to underperform because it’s more cyclical and is impacted more by the global economy which has been weak. It’s possible a combination of both are correct. Maybe the manufacturing sector didn’t get as weak as the ISM PMI showed. However, it probably did underperform services based on the hard data.

Specifically, the November Markit services PMI rose 1 point to 51.6 which matched its flash reading. It is still significantly below its long-run average, but at least it’s above 50. The 52 composite PMI is consistent with 1.5% GDP growth which is slightly below the median Q4 GDP growth estimate which is 1.8%. Markit expects 100,000 in monthly job growth, but that’s less than 50% of the recent 3-month average according to the BLS.

New business growth improved from a slight contraction to positive growth which was the highest since August. International new business fell for the 4 the straight month. Just like in manufacturing, the 1-year outlook got worse. Businesses are worried about the global economy which is why they see no change in activity. The service sector’s workforce increased for the first time since August. This is way off from the official data. Maybe if this index was more accurate, it would reflect the economy better. The PMI could be in the mid-50s.

Just like the manufacturing PMI, the services PMI improved. It was helped by the US and China. The index increased from 51 to 51.6. Five of 6 subsectors increased, led by financial services. Business confidence hit a 4 month high. It’s no surprise that with both sectors improving, the global composite index was up as well. It increased 0.7 to 51.5 which is a 4 month high. October’s reading was a 44 month low. China’s PMI hit a 21 month high. The global new business index rose 0.4 to 51.2 which is a 4 month high. Employment rose from contraction to expansion as it increased 1.1 to 50.9.

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