by Mish

In general, recent reports have been strong, but factory output hasn’t matched. Such is the nature of diffusion indexes where the direction of trends is far more important than the reported quantity.

For example, two small companies hiring 3 workers each is twice as important as one large company firing 500 workers. The same holds true for all of the components in the survey.

There are also wide variances between reports that are supposed to measure the same thing. Let’s investigate today’s examples.

The above data from ISM Report on Business

Import and export numbers in the above table are highly questionable even though the advance trade reading from the Census bureau was on goods only, not goods and services.

For details, please see Trade Deficit Unexpectedly Widens: Exports Sink, Imports Up Sharply.

We will know more when the complete trade report comes out.


Service Sector Growth at Five-Month Low

The Markit Services PMI report shows Service Sector Growth at Five-Month Low.

Key Findings

  1. Rates of expansion in activity and new work ease from January peaks
  2. Outstanding business falls for the first time in three months
  3. Relatively muted price pressures signaled

February data pointed to a slowdown in U.S. service sector growth. Rates of expansion in activity, new work and employment all eased. Meanwhile, volumes of work-in-hand were depleted for the first time since November last year. Sentiment regarding the year ahead also weakened, despite remaining upbeat overall. On the price front, both input costs and output charges increased at slower rates.
The seasonally adjusted Markit U.S. Services Business Activity Index dropped from January’s 14-month high of 55.6 to 53.8 in February. Though still signaling a solid expansion of service sector output, the latest reading was the lowest in five months and below the long-run series average (55.3).

Comments from Chris Williamson, Markit Chief Economist

  • “Taken together, the PMI survey readings for the first two months of the year suggest the economy is growing in the first quarter at a respectable annualized rate approaching 2.5%.”
  • “The burning question is whether the February slowdown merely represents some payback after a strong start to the year for US businesses, or whether it’s the start of a more entrenched slowdown.”
  • “A warning clue rests with the business expectations index, which indicates that business optimism has mellowed back to its post-election level, suggesting that companies are becoming more cautious with regard to spending and hiring.”
  • “However, companies continue to report buoyant domestic demand, especially from consumers, and continue to take on staff in reasonable numbers, the rate of hiring having slowed only modestly. The February survey is broadly consistent with 175,000 payroll jobs being added, which represents a pace of hiring that will do little to deter the Fed from delaying its next rate hike.”

Take your pick. Strong and strengthening or weakening?

Mike “Mish” Shedlock

Services PMI and Non-Manufacturing ISM Diverge Strongly Again

The soft data divergence between the ISM Non-Manufacturing Report on Business and the Markit Services PMI widened again today. Let’s take a look at each report.

Another ISM/PMI Divergence: Non-Manufacturing

On April 3, I noted a huge discrepancy between the ISM manufacturing report and Markit’s PMI manufacturing report.

Slower Expansion in Non-Manufacturing ISM and Markit Services PMI

Business activity growth softened to a 7-month low in Dec. according to Markit. ISM expansion was less than expected.

Markit PMI vs. ISM Fantasyland GDP Projection: Stagflation Lite?

The discrepancy between the ISM’s Report on Business and Markit’s Manufacturing PMI assessment of the economy widened today.

ISM vs Markit PMI Divergence Widens Again: Believe Markit

The manufacturing soft-data reports have been nearly unanimous in reporting widespread strength that has not shown up in any hard data reports.

ISM and Markit PMI On Verge of Contraction: Expect Contraction Next Month

The closely watched ISM and Markit PMI both hover near 50. That is the dividing line between growth and contraction.

Markit PMI and ISM Diffusion Indexes Upbeat on Jobs

Diffusion indexes have not matched reality for so long I struggle to remember when they did match hard data.

Markit vs. ISM Services: Markit Economist Sticks with 1% Third Quarter GDP Estimate

On many days there are no economic reports. On some days, like today, there are many reports.

ISM-PMI Divergence Widens: Markit Estimates 2nd Quarter GDP at 1.1%, Says Profit Squeeze Underway

Unlike their counterparts at the ISM, Markit sees growth in both services and manufacturing weakening with U.S. private sector growth at a seven-month low in April.