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Thursday, March 28, 2024

US Services Economy Rebounds In August “But Harvey Impact A Big Unknown”

Courtesy of ZeroHedge. View original post here.

While US Manufacturing PMI slid in August, US Services PMI rose for the 5th straight month to its highest since Nov 2015. Following last month’s collapse in ISM Services, August rebounded modestly to 55.3 (but missed expectations). Of course, as Markit notes, “the strong survey data add to the expectation that the economy was picking up further momentum before hurricane Harvey hit, the impact of which is still a big unknown.”

Which do you trust? ‘Soft’ survey data or ‘Hard’ real economic outputs?

Bloomberg notes that while the main ISM gauge was slightly below its average for this year, the results show the abrupt slowdown in July was temporary, and underscore sustained demand for services that account for about 90 percent of the economy and span industries such as utilities, retailing, health care, and construction.

The outlook remains one of modest but steady economic growth backed by a resilient job market, healthier household finances and low borrowing costs.

The services data from Tempe, Arizona-based ISM also are consistent with a pickup at factories. The group’s manufacturing index, released last week, surged to the highest level since 2011.

The new orders and employment indices both rose, but Prices-paid index rose most notably to 57.9 from 55.7.

Of course new orders gains/losses are all in the magic of seasonal adjustments…

However, inventory (and inventory sentiment) both dropped markedly on the month suggesting all is not as rosy as headlines predict.

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

 

 

The US service sector moved up a gear in August, providing a welcome boost to the economy after the sister PMI survey showed slower manufacturing growth. The two PMI surveys collectively point to the fastest rate of economic expansion since January as businesses enjoyed a summer growth spurt.

“The strong survey data add to the expectation that the economy was picking up further momentum before hurricane Harvey hit, the impact of which is still a big unknown. While the pre-Harvey data were pointing to third quarter GDP rising at an annualised rate of 3.5%, this could now be slightly below 3.0%.

“Encouragingly, August saw companies become more optimistic about the year ahead, with confidence across manufacturing and services climbing to the highest since January. Any hurricane-related impact is therefore likely to result in only a temporary lull, with stronger growth returning later in the year.

“With new orders growth accelerating, backlogs of work rising and job creation buoyant, the surveys clearly point to an economy that’s generally in expansion mode.

For Fed-watchers, the upturn in price pressures sends an additional hawkish signal for policy. Average selling prices for goods and services rose at the steepest rate for nearly three years. Another rate hike in December is therefore looking increasingly likely.”

So you decide – is US GDP growth going to be 2% or 4%? As @TopDownCharts notes, depends if you ask ISM or Markit…

So, to summarise:

ISM – Manufacturing surging as Services slump

Markit PMI – Manufacturing slumping as Services surge

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