Estimates for third quarter GDP have generally been falling fast. Both GDPNow and the FRBNY Nowcast are down nearly a full percentage points from their highs.
Today, commenting on the US Flash Services PMI, Chris Williamson, Chief Business Economist at IHS Markit said: “PMI surveys suggest that the economy is growing at an annualized rate of only around 1% again in the third quarter.”
Williamson did not lower his forecast, rather he stuck with things he has been correctly stating all year. This was despite the fact the services PMI ticked up slightly this month.
Key Points
- Sharpest rise in activity since April
- New orders and employment increase at slower rates
- Inflationary pressures ease
The rate of expansion in business activity at U.S. service providers picked up for the first time in three months during September, but remained relatively modest. Meanwhile, growth of new orders eased to a four-month low and companies reacted to modest inflows of new work by reducing their rate of hiring.
Although continuing to increase during September, new business was up only modestly compared to August. In fact, the rate of growth eased to a four-month low. The pace of accumulation in backlogs of work also eased and was the slowest in the current three-month sequence of rising outstanding business.
A weaker expansion of new business had a negative impact on employment growth in September. Staffing levels continued to rise, but the latest increase was only slight and the slowest since March 2013. The rate of job creation has now eased in two consecutive months.
Markit Flash U.S. Services PMI™
Comments from Chris Williamson, Markit Chief Economist
- “The service sector sent mixed signals in September, with faster growth of activity during the month offset by gloomy forward-looking indicators. Although business activity showed the largest monthly rise since April, inflows of new business slowed and employment growth was the weakest for three-and-a-half years. A drop in optimism about the year ahead to a near post-crisis low meanwhile cast a shadow over the outlook.”
- “Even with the latest uptick in activity, the overall rate of economic growth remains subdued. Add these service sector results to the manufacturing data and the PMI surveys suggest that the economy is growing at an annualized rate
of only around 1% again in the third quarter.” - “The slowdown in hiring means the survey results are consistent with a 120,000 rise in non-farm payrolls in September, which is a solid rate of expansion but somewhat disappointing compared to the gains seen earlier in the year.”
- “The slowdown in hiring is perhaps a natural symptom of the economy reaching full employment, but companies also reported a reduced appetite to hire and job losses due to weaker inflows of new business and worries about the outlook.”
October Surprise?
The “October Surprise” everyone has been expecting will likely be a surprise in the opposite direction.
- September 19: 3rd Quarter GDP: October Surprise? Which Way?
- September 20: Trend in 3rd Quarter GDP Estimates Unmistakably Lower
- September 23: GDP Estimates in Free-Fall: FRBNY Nowcast 2.26% for 3rd Quarter, 1.22% for 4th Quarter
Mike “Mish” Shedlock
Here is another gloomy forecast, from the WTO:
http://www.reuters.com/article/us-trade-wto-idUSKCN11X0HB
Yes, Thanks
Will comment
I’ll stick with my model and 1% growth for Q3.
The 1% is BS but there is now way they will report less than that.
This concocted statistic is now virtually meaningless. In a time in which the supply of money & credit is (and has been for ages) SOARING it is impossible to determine if there has been ANY “economic growth” in real, non-cheap-credit-dependent terms at all…
How much do you suppose “the economy” would have been growing if artificial credit growth were netted out?
My guess is: less than zero, for many years…which means that a large proportion of today’s economy consists of concealed zombie enterprises, jobs and employees – which would vanish the minute the money and credit stock failed to grow, let alone SHRANK…
I’ve always considered “growth” to fundamentally mean growth of credit. And credit to mean fundamentally the credibility of a business plan to produce profits.
So that when I go to a group of investors with a request for a billion dollars to invest in plant, equipment, labor and some starting operating capital, I can convince them that the product I have to sell will reliably create enough profit to cover the risks. Once having actually created the profits, I’ve “grown” my personal credit which will make it easier in the future to get more investment capital for expansion or other business ideas.
So I don’t think you can have growth without growing credit. And you can’t have growing credit with historically high private sector debt that must be paid off and the business plan being to just jack up the prices on the medications you produce.
So, yes, if you shrink credit, by definition you destroy the weakest enterprises, along with their jobs and employees.
Unfortunately, business in modern America is about taking over profitable businesses and turning the historical credit and credibility of that business into debt to pay off PE firms and hedge funds. Then flipping the business to the next sucker.
As Trump mentioned last night, he has a plan to expand American businesses and jobs without needing credit. Donald would lower the world’s highest taxes on corporations (that would be ours) and make American business more competitive, as well as convincing American corporations to bring the profits back to the US and invest the money here. I’m surprised that idea does not have more traction.
Two things have to be accounted for in GDP:
1. Total credit outstanding, a magic that gooses the raw GDP. Today, credit is created mostly for consumption such as buying real estate and other big ticket consumer goods. Thank you ZIRP masters.
2. An accurate measurement of inflation which factors into GDP deflator. With ongoing housing bubbles, ZIRP masters cry about the lack of inflation. Oh yes, housing is an investment asset, not something to live in.
Modern GDP measurement includes government spending. With government always growing, it is amazing that GDP is so low. The private sector must be doing really bad. I asked Mish to break out the government spending portion, but apparently he has not yet found a way to do it.
There are some estimates about how much the governments of all types contribute to the GDP. It varies by country, but if it is 40-50 percent. I do not know how these numbers are arrived at, but I assume that if you add total wages in the public and private sector + total pensions, and assume the money multiplier being constant, you get to that figure.
It is like a huge joke on the People to give them a Gross Domestic Product number, when that number includes government spending which produces nothing. If anything it probably reduces production since it requires wasting taxes which could have otherwise been put to constructive use.