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US Services Economy "Bounce" Dies As New Orders Crash Most Since Lehman

On the heels of China's, Japan's, Brazil's, and Europe's Services PMI weakness (and US Manufacturing PMI and ISM weakness), Markit's US Services PMI printed 55.1 (missing exectations of 55.6) and dropping to its lowest since June. This catch-down to Manufacturing weakness suggests the mid-year bounce is well and truly dead as even Markit admits, "it remains unclear as to whether growth will weaken further as we move into Q4." Additionally, after its exuberant spike to 10 year highs in July, ISM Services continued to drop back (to 56.9 missing expectations) .

Services (blue) appear to catching down to Manufacturing (red) in the ISM and PMI surveys...

 

After spiking to 10-year-highs in July, ISM Services continues to slide back to reality. Even after adjustements ISM Services is ugly...

 

While employment rose modesly; prices paid, inventory sentiment, and business activity tumbled...

 

But New Orders crashed... most since Lehman

 

Just remember:

  • *ISM’S HOLCOMB IS HOPEFUL MANUFACTURING IS NEARING BOTTOM

So hope is what we are waiting for.. that could be a problem.

On the inflation front, average prices charged decline for the second month running, which represented the first back-to-back declines in output charges since the survey began six years ago.

 

Looking ahead, service providers are optimistic about the business outlook, but the degree of positive sentiment dipped to its second-lowest since June 2012

As Markit explains,

The US economic growth slowed in the third quarter according the PMI surveys, down to around 2.2%. But this largely represents a payback after growth rebounded in the second quarter, suggesting that the economy is settling down to a moderate rate of growth in line with its long term average.

 

Hiring also remains relatively robust, albeit down from earlier in the year, again suggesting that the economy has shifted down a gear but remains in good health.

 

At the moment it remains unclear as to whether growth will weaken further as we move into the fourth quarter. However, with inflationary pressures waning, policymakers may have some breathing space to gauge the extent of any slowdown. Lower fuel costs helped push average prices charged for goods and services dropping at steepest rate for nearly five years.

The bounce in Q2 is over...

Charts: Bloomberg