On July 3, we discussed the divergence between the Markit and ISM diffusion indexes for manufacturing.
If the economy was indeed growing for 95 consecutive months (Nearly 8 Years), the above chart would not look like it does.
For the first quarter, ISM estimated 4.3% GDP growth.
Today the ISM says “The past relationship between the NMI® and the overall economy indicates that the NMI® for June (57.4 percent) corresponds to a 3.3 percent increase in real gross domestic product (GDP) on an annualized basis.”
Markit Services PMI
IHS Markit U.S. Services PMI™ – final data (with composite PMI™)
- Strongest expansion in business activity since January
- New order growth also at five-month high
- Input prices rise at fastest pace in two years
The final seasonally adjusted IHS Markit U.S. Composite PMI™ Output Index rose to 53.9 in June, up from 53.6 in the previous month.
Although the composite figure picked up in June, the rate of growth remained historically muted. Nonetheless, the average pace of expansion indicated over the first half of the year was faster than that seen during the same period last year.
The rate of growth in the services sector was stronger than the manufacturing sector for the first time since June 2016, according to latest survey data.
Chris Williamson Markit Chief Economist Comments
- “The final PMI numbers came in higher than the initial flash reading and provide news of a welcome uptick in the pace of growth in the vast services economy at the end of the second quarter.”
- “The services data follow news from the sister manufacturing survey showing steady but unspectacular growth in US factories.”
- “Looking at the combined performance of manufacturing and services, output, order books and employment all gained momentum in June, and average prices charged for goods and services rose at the fastest rate for nearly three years.”
- “However, the average all-sector PMI reading for the second quarter is down slightly on the first quarter, suggesting that the underlying pace of economic growth remains somewhat subdued though still robust. The surveys are historically consistent with annualized GDP growth of just over 2%. Actual GDP data are expected to show a stronger rebound, though largely reflecting volatile quarterly seasonal variations in the official data.”
Markit vs. ISM GDP Estimates
- First Quarter Markit: 1.7%
- First Quarter ISM: 4.3%
- First Quarter Advance Report: 0.7%
- First Quarter Final Report: 1.4%
- Second Quarter Markit: “Just over 2.0%”
- Second Quarter ISM: 3.3%
This is not a one-quarter phenomenon. ISM has been consistently way too high for some time.
Related Article: ISM vs Markit PMI Divergence Widens Again: Believe Markit.
Mike “Mish” Shedlock