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.
- 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.”
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