Composite PMI Flirts With Contraction; Markit Chief Economist Estimates GDP 0.7-0.8%

The Markit U.S. Services PMI™ final data shows a weaker rise in service sector business activity in May.

The Composite PMI (manufacturing plus services) flirts with contraction.

Key Points

  • Service providers indicated slower activity and new business growth
  • Weakest rise in payroll numbers since January 2015
  • Business optimism eases to a post-crisis low in May

Relatively subdued client spending provided firms with the opportunity to clear backlogs of work in May. Lower volumes of work outstanding have now been recorded for ten months running, which is the longest continuous period since the survey began.

Reduced pressure on operating capacity and weaker new business growth acted as a brake on job hiring in May. Weaker employment growth has now been recorded in three of the past four months, with the latest expansion in payroll numbers the slowest since January 2015.

Services PMI

Markit US 2016-06A

Composite PMI vs. GDP

Markit US 2016-06B

Comments from Markit Chief Economist Chris Williamson

  1. “The service sector reported one of the weakest expansions seen since the recession in May, adding to signs that any rebound of the economy in the second quarter may be disappointingly muted.”
  2. “With optimism about the business outlook dropping to a new post-crisis low, companies are expecting conditions to remain challenging in coming months, citing uncertainty about the presidential election as well as broader worries about weak demand at home and abroad.”
  3. “Add these disappointing service sector numbers to the downturn now being seen in manufacturing, and the PMI surveys point to GDP growing at an annualised rate of just 0.7-8% in the second quarter, notwithstanding any marked change in June.”
  4. “The slowdown and further drop in optimism continued to cause companies to pull-back on recruitment, with the survey signalling just under 130,000 extra jobs being created in May, driven entirely by the service sector.”

Point number 3 provides another GDP estimate. This one at 0.7% to 0.8%.

Mike “Mish” Shedlock

Disclaimer: The content on Mish's Global Economic Trend Analysis site is provided as general information only and should not be taken as investment ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.