Markit Services Strongest Since March
The Markit Services PMI shows the strongest growth since March.
September PMI data signalled a solid upturn in U.S. service sector business activity, albeit one that was slightly slower than August's recent high. The expansion was largely driven by a faster rise in new business. Quicker growth in new sales was supported by another strong increase in foreign client demand. As a result, employment growth remained historically marked, with firms mentioning strains on capacity.
Business confidence, however, sank to a four-month low amid concerns regarding the coronavirus disease 2019 (COVID-19) pandemic. Input costs rose at a strong rate, but one that was outpaced by the increase in selling prices, as firms passed on higher costs to clients.
The rate of new business growth accelerated in September, as the respective seasonally adjusted index moved further away from April's nadir. The strong expansion was the sharpest since March 2019, as total new sales were boosted by strengthening customer demand. The upturn was aided by a fourth successive monthly rise in new export orders. Moreover, the expansion in foreign client demand was the second-strongest since data collection for the series began six years ago
Nevertheless, business expectations regarding the outlook for output over the coming 12 months slumped at the end of the third quarter. Although optimistic of a rise in business activity, hesitancy among service providers reportedly stemmed from concerns relating to the ongoing COVID-19 pandemic and the impact on future demand.
Chris Williamson, Markit Chief Business Economist Comments
- “The U.S. economy continued to rebound in September from the deep contraction seen at the height of the Covid-19 pandemic, with business activity rising across both manufacturing and services to round off the strongest quarter since early-2019.
- “Covid-19 worries and social distancing continued to impact many businesses, however, especially in consumer facing sectors, where demand for services fell once again. However, business and financial services, healthcare and housing sectors all fared well as the economy continued to revive, and exports of services also picked up as other countries continued to open up their economies.
- “Encouragingly, new orders for services grew at an increased rate in September, putting additional pressure on operating capacity and fuelling another robust rise in employment. A further rise in backlogs of work bodes well for robust jobs growth to be sustained into October.
- “Sentiment on prospects for the coming year darkened significantly, however, linked to growing worries about virus numbers, uncertainty regarding the presidential election and fears that the economy is susceptible to weakening unless more support measures are put in place soon.”
ISM Service Expansion Continues
Economic activity in the services sector grew in September for the fourth month in a row, say the nation’s purchasing and supply executives in the latest Services ISM® Report On Business.®
Mixed Services Review
- “Business has been fairly stable over the summer; however, there is still a great deal of uncertainty as we move into fall and winter [and] how our sales volume will be.” (Agriculture, Forestry, Fishing & Hunting)
- “Our industry is facing a bleak outlook, as the Hollywood studios have pulled back almost all of their content from October and November and moved it into next year. Coupled with the state health mandates restricting our attendance, we expect to operate at a loss in 2020 and 2021.” (Arts, Entertainment & Recreation)
- “Work orders are improving rapidly. Lack of available labor is having a significant impact on our ability to fulfill orders.” (Construction)
- “As a public state university, our economic forecast is dependent upon our campus remaining open and students on campus. Currently, our students are on campus, but we have a reduced footprint with a 25-percent decrease in students living in university-provided housing. Enrollment was down 2 percent and most attribute that to COVID-19. Many students choose to stay close to home and attend classes at their local university or community college. Overall, our revenue will be down slightly this year, as long as our campus remains open. If we have to send students home due to a COVID-19 outbreak, then we will experience a drastic reduction in our revenue.” (Educational Services)
- “Insurance industry will experience some impact from weather- and protest-related property damage and business interruption.” (Finance & Insurance)
- “Elective procedures remain at near-historic levels, even with periodic and small [coronavirus] spikes within the region. Our organization is rolling back and approving some — not all — of the capital projects previously approved for this year and starting to regroup and plan/budget for 2021. We continue to have furloughed staff in more administrative roles than clinical, and shared services staff that are working well in the alternative work environments will not return until (at the earliest) mid next year. Our productivity remains high, possibly higher, than when we are in our offices, at least for shared-services roles that are having no information technology [IT] issues. We are starting to see an increase in backorders and rejections from our main vendors. End-of-year typically brings more discontinuations and catalog consolidations from vendors, and on top of COVID-19 product issues, resources are being stretched further again.” (Health Care & Social Assistance)
- “Activity level is holding steady, with optimistic outlook.” (Mining)
- “Customer confidence creeping back as a belief in the end, or perhaps taming, of COVID-19 increases; however, it comes with a high degree of caution regarding uncertainty in the marketplace and a reluctance to commit. Exploratory conversations are increasing, but hard orders are not.” (Professional, Scientific & Technical Services)
- “Business has come back solidly since mid-July, with a strong August and September. However, suppliers are plagued with lead-time challenges driven by (1) cautionary practices in terms of rebuilding capacity, (2) hiring difficulties for those trying to build capacity and (3) the impact of recent hurricanes in some regions.” (Retail Trade)
- “Very good sales trend in home-improvement product sales, but challenges on market conditions exist like limited ocean capacity from Asia to U.S., delays in port and rails as a result of COVID-19 pandemic impact.” (Wholesale Trade)
Are Things Doing Well?
It clearly depends on the sector. Cautions abound.
"Strongest since March" does not mean strong.
These are diffusion indexes where direction, not strengths matter. A company adding 3 employees offsets another laying off 500.
Take a look at the ISM Services Employment. It is finally growing for the first time since March.
Backlogs are barely above contraction.
The overall PMI and Production numbers look good, but much of it is simply compared to the depths of hell.
Given stimulus checks stopped on September 5, demand for goods and services of all kinds rates to weaken.
For discussion, please see Little Progress on Unemployment Claims but Checks Grind to a Halt.
This month we rate to lose tens of thousands of jobs in the airline and energy sectors.
For details, please see The Airlines, Allstate, and Shell Announce Mass Layoffs
House Speaker Nancy Pelosi said that a deal for the airlines was imminent. But that was a day before the president and three Republican senators contracted Covid.
Senate Majority Leader Mitch McConnell postponed all votes for two weeks.
That's not "imminent" in my books and there may be no votes at all in the final two weeks before the election.