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Uplift in services PMI does little to change picture of
lacklustre GDP growth at start of third quarter
Manufacturing slowdown gathers pace
Future business expectations hit new low
The pace of US economic growth slowed in the second quarter, and
PMI survey data hint that the expansion could remain relatively
lacklustre in the third quarter.
An improvement in the overall rate of services sector business
activity growth signalled by the IHS Markit Services PMI for July
is welcome news, with firms reporting the quickest increase in
activity for three months. Inflows of new business meanwhile grew
at the fastest rate since March.
However, although this represents an improvement on the average
pace of expansion seen in the second quarter, July's rate of growth
of services activity remained markedly weaker than seen in the
first quarter.
Moreover, the services PMI data follow news that the
manufacturing sector reported its toughest month since 2009 in
July. The IHS Markit survey is indicative of manufacturing
production falling at an annualised rate in excess of 3% and
flirting with recession, led lower by a deterioration in
exports.
Taken together, the weighted average of the PMIs for
manufacturing and services points to GDP expanding at an annualised
rate of under 2% in July, below the 2.1% gain seen in the second
quarter and among the weakest rates recorded over the past three
years.
Although new order inflows picked up at the aggregate level
across both sectors, companies grew increasingly cautious about the
longer-term outlook. Trade war worries and wider geopolitical
jitters, as well as growing concerns that the economic cycle has
peaked, pulled the survey's future expectations index to the lowest
since comparable data were first available in 2012. Hiring has
meanwhile been hit, in line with the deterioration in confidence
about the business outlook. The monthly gain in employment recorded
in July was unchanged on the 26-month low seen in June.
The drop in confidence suggests downside risks have increased in
the near-term at least, hinting that the upturn in growth seen in
July could prove short-lived and hence adding to signs that GDP
growth could remain disappointingly modest in the third quarter.
Much will depend on trade war developments, and the ability of the
service sector to sustain growth and offset the manufacturing
slowdown.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
