The Markit Services PMI diffusion index is hovering just above 50, the boundary between expansion and contraction.
Markit reports U.S. service sector growth remains subdued in April.
- Moderate expansion of service sector business activity during April
- New business growth rebounds only slightly from March’s post-crisis low
- Job creation eases to its weakest for six months
April data pointed to only a modest rebound in business activity across the U.S. service economy. At 52.1, up from 51.3 in March, the seasonally adjusted Markit Flash U.S. Services PMI™ Business Activity Index1 picked up further from February’s 28-month low and was above the neutral 50.0 threshold. The latest survey indicated that business activity expanded at a slightly faster pace than that recorded during the first quarter of 2016 (51.4 on average). However, growth momentum remained much weaker than that seen on average since the survey began in late-2009.
A relatively weak upturn in new work contributed to slower job creation across the service economy in April. Payroll numbers have expanded continuously for just over six years, but the latest increase was the softest since October 2015 and weaker than the post-crisis trend. At the same time, service providers indicated another modest drop in backlogs of work in April, suggesting a lack of pressure on operating capacity.
Commenting on the flash PMI data, Chris Williamson, chief economist at Markit said:
“The upturn in the rate of growth of business activity and increased inflows of new orders suggest the economy should see GDP rise at an increased rate in the second quarter, but growth is clearly far more fragile than this time last year.
“Viewed alongside the recent poor performance of the manufacturing sector, which reported its worst month since October 2009, the survey suggests the economy grew at an annualized rate of just 0.8% at the start of the second quarter, only marginally above the pace signalled for the first quarter. “Survey responses indicate that persistent weak demand from domestic and overseas customers, the struggling energy sector, the strong dollar and election worries are all eating into business optimism.
“The current pace of growth is also only being supported by price reductions, as an increasing number of firms offer discounts to win sales.
Markit Composite US Index vs. GDP
The US “composite” index is a blend of services and manufacturing.
Markit’s chief economist Chris Williamson called the above “fragile” noting discounts needed to increase business.
His estimate is for 0.8% GDP growth in the second quarter based on current trends. If this was an over-under betting line I would take the “under”.
Mike “Mish” Shedlock.