Inflation – Weak Services Push Composite Flash PMI Lower
The flash September composite PMI from Markit was weak because the service sector missed estimates sharply. The composite PMI was 53.4 which missed estimates for 55 and the prior report of 55.
This was below the lowest estimate of 53.8. This shows Markit is restarting its relative negativity after showing growth rebounded in the second half of August. Manufacturing was strong as it hit 55.6. This beat the consensus for 55 and the highest estimate which was 55.2.
It also was higher than August’s reading of 54.5. The service sector was the weak point as its PMI came in at 52.9 which missed the consensus for 55, the lowest estimate which was 53.6, and August’s PMI of 55.2.
Since the service sector is much bigger than manufacturing, it brought down the overall metric, more than canceling out the strong manufacturing reading.
Manufacturing can still be important because it tends to be more volatile than services. Services hit an 18 month low, pushing the overall composite to a 17 month low. This is while manufacturing and manufacturing output hit a 4 month high.
Positive sentiment on services activity growth was the weakest since December 2017. Even with this weakness, there was a renewed increase in backlogs, stronger new business growth, and the fastest rate of job creation since May 2015.
Even though we’ve seen some inflation metrics moderate, the Markit report showed the opposite. Average prices charged by service providers increased at the quickest pace since at least October 2009. This is when the stat started being calculated.
Interestingly, even though the manufacturing PMI hit a 4 month high, the 12-month manufacturing outlook hit a 2.5 year low partially because of higher costs due to the tariffs on metals. There was a decrease in manufacturing hiring growth consistent with the September BLS report.
Inflation – 3% GDP Growth & 200,000 Jobs Added
The Chief Business Economist at Markit stated this report is consistent with annualized GDP growth approaching 3% and non-farm payroll growth of 200,000.
