ISM Services Catches Manufacturing’s Cold – Tumbles To Weakest Since 2016
After a week of abysmal global PMIs (and US manufacturing’s collapse to a standstill), expectations were ever hopeful for a small bounce in ISM Services data (even though it did bounce surprisingly in August) to save the world (and stocks).
Markit Manufacturing BEAT – 51.1 (5mo highs)
Markit Services MEET – 50.9 (up from 50.7 in August)
ISM Manufacturing MISS – 49.1 (contractionary print well below expectations and 10 year lows)
ISM Services MISS – 52.6 (lowest since August 2016)
So, as always, a mixed bag – manufacturing rose to 5-month highs and/or dropped to 10-year lows; and services bounced modestly and/or plunged to weakest in 3 years…
Under the surface, employment stands out as a big drop…
Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:
“A disappointing service sector PMI follows news of lacklustre manufacturing and means the past two months have seen one of the weakest back-to-back expansions of business activity since 2009, sending a signal of slower GDP growth in the third quarter. The surveys are consistent with the economy growing at a 1.5% annualised rate in the third quarter, with forward-looking indicators suggesting further momentum could be lost in the fourth quarter.”
“In particular, inflows of new business have almost stalled, with September seeing the smallest increase since 2009, and business expectations about the year ahead remain stuck at one of the gloomiest levels since at least 2012.
“In this environment, companies are taking an increasingly cost-conscious approach to payrolls, with September consequently seeing surveyed firms report a net drop in headcounts for the first time since 2010. This translates into non-farm payroll growth trending below 100,000.
“Price pressures have also abated in line with the weak demand picture, suggesting official inflation gauges could likewise moderate in coming months.”
Globally, Composite PMIs are all trending down towards contraction (but Germany stands out)…
Finally, before the world starts to excuse these numbers by playing down the impact of manufacturing on the economy, here are a simple chart to explain why they’re wrong. While 86% of jobs are in the services economy (14% in manufacturing), manufacturing earnings make up a considerable majority 68% of S&P earnings (32% services), which means if we adjust the ISM Composite for this ‘real’ weight, things look considerably worse – contraction!
Get back to work Mr. Powell…
Thu, 10/03/2019 – 10:04