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Flash composite PMI™ at 51.6 in July, points to weak growth
persisting into third quarter
Manufacturing output falls at fastest rate since August
2009
Jobs growth weakest in over two years as future optimism down
to new survey low
Selling prices barely rise
PMI in 'dovish' territory ahead of FOMC meeting
Flash PMI survey data indicated that the US economy started the
third quarter on a disappointingly soft footing. At 51.6 in July,
the seasonally adjusted IHS Markit Flash US Composite PMI Output
Index edged up from 51.5 in June and remained higher than the
three-year low recorded during May, but still signalled only a
modest expansion of private sector output.
The PMI surveys for manufacturing and services collectively
point to annualised GDP growth of just 1.6%, up only very
marginally from a lacklustre 1.5% indicated by the survey in the
second quarter.
The overall picture of modest growth conceals a two-speed
economy, with steady service sector expansion masking a deepening
downturn in the manufacturing sector. While service sector growth
remained robust, in part fuelled by rising consumer spending, the
survey's gauge of factory production slumped to its lowest since
August 2009. At current levels, the survey indicates that
manufacturing output is falling at a quarterly rate of over 1%, led
by an increasing rate of loss of export sales.
The survey's employment gauge has meanwhile fallen to a 27-month
low, down to a level consistent with 130,000 jobs being added in
July. That compares with signals of an average of 200,000 in the
first quarter and 150,000 in the second quarter. Manufacturers are
shedding workers at the fastest rate since January 2010 and service
sector job creation is now down to its slowest since April
2017.
The July survey found evidence of firms becoming increasingly
cautious in relation to hiring amid an increasingly uncertain
outlook. Future prospects have darkened to the gloomiest since
comparable data were first available in 2012, according to the
latest survey, suggesting that companies may look to tighten their
belts further in coming months, dampening spending, investment and
jobs growth. Geopolitical worries, trade wars and increasingly
widespread expectations of slower economic growth at home and
internationally have all pulled business optimism lower.
Inflationary pressures meanwhile remained subdued, with cost
burdens rising only marginally during July to register the
second-weakest monthly increase since September 2016. While service
providers reported a shift to net discounting on their selling
prices on average, a sharper rise in factory gate charges across
the manufacturing sector was recorded, in part reflecting the
pass-through of tariffs. However, the overall rise in prices
charged for both goods and services was only marginal and the
joint-weakest recorded since April 2016.
The flash PMI survey data come ahead of the July 31st FOMC
meeting, and add support to dovish views on the economy in advance
of an expected cut in interest rates for the first time in over ten
years. However, as our chart shows, the PMI's composite output
index is only just in territory which would normally be associated
with a dovish tilt, highlighting how many perceive a rate cut to
merely be 'insurance' against any further weakening of the
economy.
Chris Williamson, Chief Business Economist, IHS
Markit
Tel: +44 207 260 2329
chris.williamson@ihsmarkit.com
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.
