One again it was a "good cop, bad cop" combination of the Markit and ISM service surveys.
First, it was Markit, which printed at the just barely expansionary Final March print 51.3, up from the preliminary 51.0, but the internals continued to deteriorate. As the chart below shows, and as the commentary confirms, the US service sector is barely hanging on by a thread.
Some of the highlights:
- Service sector output rises in March, following slight decline in previous month
- New work expands at slowest rate seen in six-and-a-half year survey history
- Optimism about the business outlook also dips to a post-crisis low
The details:
U.S. service providers signalled a modest rebound in business activity and robust employment growth during March. However, incoming new business expanded at the slowest pace since the survey began in October 2009, which also contributed to a fall in business confidence to a survey-record low. Meanwhile, input cost inflation remained subdued in March and prices changed by service sector companies increased at only a marginal pace.
The seasonally adjusted final Markit U.S. Services Business Activity Index registered 51.3 in March, up from 49.7 in February and back above the crucial 50.0 no-change value. Nonetheless, the latest reading was still the second-lowest since October 2013 and pointed to only a marginal upturn in service sector output. Moreover, the average for the first quarter of 2016 (51.4) signalled the weakest expansion of business activity since Q3 2012.
The average index reading in Q1 2016 (51.5) was the weakest seen for any quarter since Q3 2012 (51.3).
Respondents were not happy:
Survey respondents noted that subdued growth of incoming new work persisted in March. The latest expansion of new business volumes was only marginal and the weakest in six-and-a-half years of data collection. Anecdotal evidence suggested that uncertainty about the economic outlook and cautious spending patterns among clients continued to hold back new business growth across the service sector.
Softer growth of incoming new business resulted in another reduction in backlogs of work during March. Work-in-hand (but not yet completed) has now fallen for eight months running, which firms mainly linked to a lack of pressure on operating capacity at their business units. However, service providers boosted their payroll numbers, which continued the upward trend seen in each month since March 2010. Companies that reported a rise in their staffing levels mainly commented on the launch of new products and long-term business expansion plans.
Service providers indicated sustained optimism (on balance) about the year-ahead business outlook in March. However, the degree of positive sentiment moderated for the second month running and was the lowest since the survey began in late-2009, reflecting heightened economic uncertainty and softer new business growth in recent months.
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And then, as is customary, the traditionally more bullish ISM reported that in March, the non-mfg ISM rebounded from 53.4 to 54.5, modestly beating expectations of 54.2.
The all important New Orders series rose from 55.5 to 56.7, which makes it the highest print since December of 2015.
Other components likewise rose, with Business Activity rising +2 to 59.8; the Employment Index refuted the trend spotted by Markit, and also rose from a contractionary 49.7 to 50.3, while Prices Paid jumped from 45.5 to 49.1
The full breakdown:
And, as always, the responses which at key inflection points tend to be oddly cherrypicked to the upside, were just that:
- "Nationally, business seems stronger than a year ago in Q1. Internal volume is better than expected and vendors report stronger Q1 than expected." (Management of Companies & Support Services)
- "[Business] conditions are moving at a slow, but positive pace in this market. Expansion efforts are back on the horizon for late 2016." (Finance & Insurance)
- "Macroeconomics, the world oil glut, Fed interest rates, foreign currencies in trouble, the slowing Chinese economy and a strong dollar will continue to place pressure on U.S. exports, especially food commodities. These situations have created lower domestic wholesale prices and lower hotel COGS [Cost of Goods Sold]; a win for us." (Accommodation & Food Services)
- "Stability/dependability of revenue sources and cost of healthcare continue to be drivers in government revenues and expenditures." (Public Administration)
- "Similar to last month, our company continues to look for ways to invest in lowering prices to attract cost-conscious consumers in a highly competitive grocery retail environment." (Retail Trade)
- "No new business, but existing business is up 5 percent month-over-month and 40 percent year-over-year, especially in our e-commerce fulfillment services. Subsequent purchasing is relatively flat as productivity improvements are creating more capacity with less incremental cost." (Transportation & Warehousing)
- "Lower volumes than expected at the start of the year." (Arts, Entertainment & Recreation)
- "Business remains the same with an increase in hiring." (Information)
The market reaction, as expected, ignored the gloomy Markit release, and spiked on the far more bullish ISM print, with the Dow nearly wiping out all the day's gains.