After a brief dead cat bounce, the US services economy has tumbled back to 3-month (near 7 year) lows, missing expectations by the most on record. With the slowest pace of hiring since Dec 2014 (signalling a mere 128k rise in payrolls for May), business optimism plunged to record lows (since the survey began in Oct 2009).
When hope fades...
May data highlighted a renewed fall in business optimism across the service economy. Reflecting this, the balance of service sector firms forecasting a rise in business activity over the year-ahead eased to its lowest since the survey began in October 2009.
Anecdotal evidence suggested that uncertainty related to the presidential election and concerns about the general economic outlook had continued to weigh on business confidence.
Commenting on the flash PMI data, Chris Williamson, chief economist at Markit said:
“A deterioration in the survey data for May deal a blow to hopes that the US economy will rebound in the second quarter after the dismal start to the year.
“Service sector growth has slowed in May to one of the weakest rates seen since 2009, and manufacturing is already in its steepest downturn since the recession.
“Having correctly forewarned of the near-stalling of the economy in the first quarter, the surveys are now pointing to just 0.7% annualised GDP growth in the second quarter, notwithstanding any sudden change in June.
“A deteriorating order book situation and waning business optimism have meanwhile led to a further pull-back in hiring as companies scaled down their expansion plans. The surveys are signalling a non-farm payroll rise of just 128,000 in May.
“With no sign of any growth rebound and the labour market cooling, only one of the Fed’s three tests for a June rate hike – rising price pressures – is passed according to the PMI data. However, with prices rising largely on the back of higher oil prices rather than a fundamental improvement in demand, it seems that even core inflationary pressures remain subdued.”