US Services Economy Surges In Feb As Manufacturing Slumps

While Manufacturing surveys (ISM and PMI) plummeted in February – tracking the plunge in ‘hard’ data – Services PMI just rebounded from 54.2 to 56.0 (admittedly very marginally below the preliminary print of 56.2).

The upper pane below shows the dramatic divergence between Markit’s Manufacturing (plunge) and Services (surge) surveys. The lower pane shows the same for ISM’s data (Services ISM printed 59.7 vs 57.4 exp – the biggest jump in a year)…

The ISM increase, driven by 13-year highs in gauges of new orders and business activity, topped all but one estimate in a Bloomberg survey calling for a rise to 57.4.

ISM Respondents were mixed however:

“Confidence is returning in the marketplace, but tariff surcharges are still in place.” (Retail Trade)

“Tariffs continue to have an impact on our business. The contractor labor shortage continues to be the biggest supply challenge for our company and others in our region and industry.” (Utilities)

The report also indicates that continuing trade tensions and a dimming global-growth outlook aren’t weighing so much on service providers. An index of export orders rebounded from a two-year low while a gauge of imports fell to the lowest since 2017.

However, the employment gauge fell to an eight-month low, though remained at a historically elevated level.

Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“The US PMI surveys tell a tale of two economies in February, with any slowdown story confined to the goods-producing sector. While manufacturing struggled, with the surveys consistent with a near stalling of factory output and order books, the service sector remained encouragingly resilient, enjoying its strongest burst of activity for seven months.

In addition to signalling stronger economic growth, the surveys suggest hiring also remained encouragingly solid in February with a 250,000 non-farm payroll rise indicated, albeit predominantly driven by the service sector.

The worry is that the manufacturing slowdown will spill over to the service sector, damping economic growth in coming months. Companies themselves certainly appear to have become more circumspect, with business optimism cooling in February amid worries over the impact of tariffs, trade wars, higher prices and rising interest rates.”

Finally, Williamson signals US economic growth is set to rebound:

“With the size of the vast service sector overshadowing the manufacturing sector, the two surveys suggest the overall pace of economic growth accelerated in February. Having correctly indicated that the economy grew at a slower but still solid pace in the fourth quarter (our model from the survey indicated 2.5% growth against an initial official estimate of 2.6%), the data for the first two months of 2019 point to a similar 2.6% annualised rate of expansion.

For now, US seems to be the cleanest dirty shirt (55.5 final for Feb, though down from the 55.8 prelim print), but do not forget that this is a lead-lag relationship, not a decoupling…

Source Article from

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