If the US economy is ready for rate hikes starting June, you certainly would not ascertain that fact from the service sector PMI.
Today the flash reading shows service growth is the weakest since 2009, barely above contraction.
The Markit Flash U.S. Services PMI™ shows “Weak service sector growth persists in May, while business optimism eases to its lowest for over six-and-a-half years”.
Key Points
- Weakest rise in service sector activity for three months
- Service providers report slowest rate of staff hiring since December 2014
- Business optimism drops to its lowest recorded since the survey began in October 2009
Markit PMI Service Sector Activity
U.S. service providers indicated a sustained upturn in overall business activity during May, but the rate of expansion was only marginal and the weakest for three months. Survey respondents cited relatively subdued client demand and less favourable domestic economic conditions as key factors weighing on business activity in May.
The seasonally adjusted Markit Flash U.S. Services PMI™ Business Activity Index registered 51.2 in May, to remain above the crucial 50.0 no-change value for the third consecutive month. However, the index was down from 52.8 in April and much weaker than the long-run survey average (55.6).
In line with the trend for business activity, service providers also recorded a renewed slowdown in growth of incoming new work during May. The latest expansion of new business intakes was only modest and one of the weakest recorded since the survey began in late-2009. Some firms commented on a cyclical slowdown in investment spending and continued unwillingness among clients to commit to new projects.
Subdued demand also contributed to another reduction in backlogs of work across the service economy, with the rate of decline accelerating to its fastest for just over two years. At the same time, payroll numbers increased only marginally in May, which some firms attributed to heightened uncertainty about the outlook for client spending. Jobs growth has now slowed in three of the past four months, with the latest upturn the weakest since December 2014.
Markit US Composite PMI
The Markit composite PMI is a blend of the service PMI and the manufacturing PMI. It tracks GDP nicely.
Please see US Manufacturing PMI Declines First Time Since September 2009 for the latest manufacturing PMI numbers.
Comments from Chris Williamson, Chief Economist at Markit
- “A deterioration in the survey data for May deal a blow to hopes that the US economy will rebound in the second quarter after the dismal start to the year.”
- “Service sector growth has slowed in May to one of the weakest rates seen since 2009, and manufacturing is already in its steepest downturn since the recession.”
- “Having correctly forewarned of the near-stalling of the economy in the first quarter, the surveys are now pointing to just 0.7% annualised GDP growth in the second quarter, notwithstanding any sudden change in June.”
- “A deteriorating order book situation and waning business optimism have meanwhile led to a further pull-back in hiring as companies scaled down their expansion plans. The surveys are signalling a non-farm payroll rise of just 128,000 in May.”
- “With no sign of any growth rebound and the labour market cooling, only one of the Fed’s three tests for a June rate hike – rising price pressures – is passed according to the PMI data. However, with prices rising largely on the back of higher oil prices rather than a fundamental improvement in demand, it seems that even core inflationary pressures remain subdued.”
2nd Quarter GDP Estimates
- Atlanta Fed: 2.5% – updated tomorrow
- New York Fed: 1.7% – updated Friday
- Markit: 0.7% – updated today
I expect both the Fed models will jump tomorrow because of the Head-Shaking Increase in New Home Sales on May 24.
However, gaming the competing Fed models has been more than a bit problematic. For discussion, please see GDPNow 2.5%, NY Fed Nowcast 1.7%; Huge Discrepancies: Why?.
I have had talks with researchers from the Atlanta Fed and have them scheduled with the New York Fed. I expect to have an update later this week or next.
Mike “Mish” Shedlock
http://www.dcclothesline.com/2016/05/25/outrage-senate-robbed-veterans-of-millions-to-resettle-afghan-interpreters-now-they-want-to-do-it-again/
Rate hikesarent “optional.” Either the Fed is serious about sound money or they’re going to rob the country blind with a hyperinflation.
Since the Fed gone so far as to issue forward guidance saying they will raise rates yet now like Hamlet simply talk to themselves all day without engaging in any critical thinking in the process (in other words they should just shut up obviously) then of course the money is no good and all assets will start rising in price “together” with the Fed just standing there … even wading out into the former Bay…as a giant financial tsunami comes roaring in “like a freight train.”
US headed for deflation … not hyperinflation.
That’s what Mish has been saying all along in this “Greatest Depression Evah!”
http://www.dcclothesline.com/2016/05/25/a-shocking-nbc-news-report-says-that-someday-we-will-be-microchipping-all-of-our-children/
Interesting article, especially the part about digital cash. TSA has a no fly list. Obamacare will develop a No Medical Treatment List. Treasury will develop a list of those not allowed to buy or sell. “Progressive” forces for a socialist Totalitarian State are very strong.
Another generation may “demand” chip implants that allow cell phone access and music listening without carrying around a separate device. People already demand artificial leg and arm devices, heart pacemakers (containing computer chips), etc. Man-machine hybrids have been happening for decades.
Given emphasis on private property rights in West, I can foresee people wanting to treat their children as property or like pets. Progressive parents will demand it, and want it paid for by health insurance. Progressive government politicians will comply, as it makes it easier to track the state’s “people assets.” Who knows, maybe public schools will eventually demand chipped children, just as they now often demand vaccinations. The future is almost here.
“2nd Quarter GDP Estimates”
In honor of Q1 GDP advance estimate of +0.5% …
GDP is a heavily revised number … and the BEA economists particularly adept at “missing the boat” at inflection points in the economy.
Take Q1 2008 GDP … advance estimate came out april 30th, 2008 at +0.6%. First revision may 29th, 2008 @ +0.9% (to the cheers of perma bullz who were sticking that in the face of those – me included – who thought US in a recession).
Subsequent revisions where the real story told … much much later than in “real time”.
June 26th, 2008 … +1.0%
July 31st, 2008 … +0.9%
July 31st, 2009 … -0.7%
July 30th, 2010 … -0.7%
July 29th, 2011 … -1.8%
July 31st, 2013 … -2.7%
July 30th, 2014 … -2.7%
here is the BEA link …. go to bottom where it says ” vintage history …….” … takes you to an excel spreadsheet.
http://www.bea.gov/national/index.htm#gdp
Thanks Tony
That is precisely why I have not thrown in the towel on my call.
And here is something you may not have known.
The BEA revised its 4th and 1st quarter seasonal logic because it understated growth. Despite that revision, fourth and first quarters were weak. Supposedly second and third quarters will be downgraded a bit.
Mish
Rail says “what growth?”
…
WASHINGTON, D.C. – May 25, 2016 – The Association of American Railroads (AAR) today reported U.S. rail traffic for the week ending May 21, 2016.
For this week, total U.S. weekly rail traffic was 506,983 carloads and intermodal units, down 8.5 percent compared with the same week last year.
…
For the first 20 weeks of 2016, U.S. railroads reported cumulative volume of 4,803,310 carloads, down 14 percent from the same point last year; and 5,150,727 intermodal units, down 1.7 percent from last year. Total combined U.S. traffic for the first 20 weeks of 2016 was 9,954,037 carloads and intermodal units, a decrease of 8.1 percent compared to last year.
https://www.aar.org/newsandevents/Press-Releases/Pages/2016-05-25-railtraffic.aspx
Hey Mish,
Saw your post being featured over at Zero Hedge. Congrats, and good luck on the new site. Hope you are well brother.
Peace and Aloha,
Bay of Pigs
Thanks Bay of Pigs
It’s been a long time!
You are now approved for commenting here.
Comment away – Hope you like this system better than previous comment system disasters I had.
We are Japan. We are all Japan now: flat-lining economy, in and out of shallow recession, ever more debt, ever more “stimulus” programs and other manipulations. Only a debt liquidation will clear out the dead wood, bad banks, bankrupt the unworthy.
What’s really needed is to bankrupt the US government and force it’s liquidation. But that can’t happen unless we eliminate the Fed Reserve and the money printers. We must do that now before recession/depression hits and we become Venezuela/Argentina instead of Japan.
THE END RESULT IS THE DISSOLVING USA IS HEADED FOR NO MONEY, THAT IS OUR DESTINATION. THE RESULT FROM THIS WILL BE FULL BLOWN TYRANNY AND DICTATORSHIP, UNLIKE HISTORY AS EVER SEEN. TECHNOLOGY SHALL EVER ENHANCE THIS, THERE IS A SURVEILLANCE LIKE NO OTHER GENERATION HAS EVER EXPERIENCED OR EVER WILL. TRANSHUMANISM WILL BE A KEY NOTE SPEAKER.
There are hundreds of millions of people in this country. Are you saying, at some given time, everybody is going to run out of money? There are millions of millionaires in this country. They will not all go broke at once, with everyone else. The Federal Reserve can print all the money it wants, how, exactly will we run out of money?
I agree there are serious problems, and the U.S. will change significantly in the next 20 or so years. But I do not think on some day no one will have anything. There are hundreds of millions of people who have to eat. They will spend whatever they have to do so. That will provide some ongoing commerce. There are pensions, annuities, and other insurances that will cover people for a while. There is social security and Medicare which will make payments for some time. To assume that all commerce goes to zero is ridiculous. .
Humanity has faced serious problems in the past. To assume that everyone is going to starve to death starting on some date is not very clear thinking.
Comcast is hiring:
http://fortune.com/2016/05/20/comcast-jobs-colorado/
New call center in Fort Collins Colorado. 600 people, eventually. If you can put up with “difficult” customers you can advance pretty quickly, since the
burnoutturnover rate is pretty high.Something new will come into your daily life, when you might
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