Malaise Spreads to Services: US Services PMI Contracts for First Time Since October 2013

For the first time in 27 months, the Markit Services PMI went into contraction. This is yet another signal the US economy is on the verge of recession if not in recession. I believe the latter.

Markit U.S. Services PMI™ – Final Data (with Composite PMI™)

Key Points

Weakest service sector performance for almost two-and-a-half years
New business and employment growth sustained in February
Business confidence slips to its lowest since August 2010

Markit U.S. Services PMI Business Activity Index

Adjusted for seasonal influences, the final Markit U.S. Services Business Activity Index registered 49.7 in February, down from 53.2 in January and below the neutral 50.0 value for the first time in almost two-and-a-half years. As a result, the latest reading indicated the weakest service sector performance the government shutdown disrupted business activity in October 2013.

The seasonally adjusted final Markit U.S. Composite PMI™ Output Index posted 50.0 in February, thereby signalled that private sector output was unchanged over the month. Moreover, the index was down from 53.2 in January and the weakest recorded since October 2013.

Comment

Commenting on the PMI data, Chris Williamson, Chief Economist at Markit said: “Business activity stagnated in February as malaise spread from the manufacturing sector to services. The Markit PMIs are signalling a stagnation of the economy in February, suggesting growth has deteriorated further since late last year.

“Prices pressures are waning again in line with faltering demand. Average prices charged for goods and services are dropping once again, down for the first time in five months, as firms compete to win new business
“Worse may be to come, as inflows of new business have slowed sharply, causing backlogs of work across both sectors to fall at the fastest rate seen since the 2008-9 financial crisis. Such weak demand suggests that business activity and price discounting look set to continue.

“However, perhaps the brightest warning light is the downturn in business optimism to the joint-lowest recorded by the survey, suggesting firms are bracing themselves for trouble ahead.

“The only positive note in the PMI report is the sustained robust rate of job creation in the services sector, though it seems inevitable that firms will take a more cautious approach to hiring if demand continues to wane in coming months.”

Composite PMI

With the exception of the protracted budget battle in Congress, the last time the composite PMI went into contraction, the US was headed into recession.

Mike “Mish” Shedlock