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Stunning: Markit PMI Posts Wild Miss As 4-Year Expansion Abruptly Ends

And that, as they say, is that.

Things took a rather dramatic turn on Friday in the US, when a flight-to-safety bid was exacerbated by the worst IHS Markit composite PMI print since October of 2013.

In an unexpected turn for a US economy that, by most indications, is holding up well, the flash read on Markit’s activity gauge is a cold, hard slap in the face.

New orders plunged to 49.8, the lowest in series history.

This is the first contraction-territory print since early 2016, during the depths of the deflation scare that ultimately prompted the Shanghai Accord.

And guess what? The word “virus” shows up in the accompanying commentary a half-dozen times.

“Although only fractional, the decrease in business activity brought to an end a near-four year sequence of expansion following a contraction in service sector output and a slower rise in manufacturing production amid supplier delays following the outbreak of coronavirus”, IHS Markit said Friday, adding that “new orders received by private sector firms fell for the first time since data collection began in October 2009”.

The release goes on to cite lackluster demand in the services sector and the most tepid pace of manufacturing new order volumes in nine months.

The services PMI printed 49.4 in the flash reading. That is a horrible miss to consensus (53.4) and the first contractionary read in four years. New business was the lowest on record.

Chris Williamson, Chief Business Economist at IHS Markit, delivered the news in straightforward terms:

With the exception of the government-shutdown of 2013, US business activity contracted for the first time since the global financial crisis in February. Weakness was primarily seen in the service sector, where the first drop in activity for four years was reported, but manufacturing production also ground almost to a halt due to a near-stalling of orders.

He went on to cite the culprits. Spoiler alert: It’s not just the virus. Political jitters are on the radar too. Here’s Williamson again:

Total new orders fell for the first time in over a decade. The deterioration was in part linked to the coronavirus outbreak, manifesting itself in weakened demand across sectors such as travel and tourism, as well as via falling exports and supply chain disruptions. However, companies also reported increased caution in respect to spending due to worries about a wider economic slowdown and uncertainty ahead of the presidential election later this year.

These figures, IHS Markit cautions, are consistent with GDP growth slowing to just 0.6% in February from 2% in January.

This comes as a bitter disappointment after ISM manufacturing finally climbed out of contraction territory earlier this month. The numbers also suggest that the US economy may not be as immune (figuratively or literally) from the coronavirus as many market participants seemed to believe.

And that, as they say, is that.


11 comments on “Stunning: Markit PMI Posts Wild Miss As 4-Year Expansion Abruptly Ends

  1. If this goes on much longer, not even our in-the-bag attorney general will be able to save Trump.

    • “uncertainty ahead of the presidential election later this year… ” Trump will just spin this as the progressive Democrat’s proposals causing the angst… remember, he said, the stock market will collapse if you don’t elect me. Very scary times.

  2. I am the cycle guy. That print is right on the money for a cycle low in August. I have been screaming that we have not yet had the recession and that any optimism for 2020 was way off base. The Kitchin cycle for money and rates bottomed just before Shanghai in Feb 2016. The high was May 2018 – or 2nd Q anyway. Today’s number show that perfectly. If we were in a healthy uptrend the last Sep – right after Labor Day – bottom was the low. At TGV we are money, rates-debt-burden-Ponzi guys. We judged the upmove a failure and decided that the Kitchin cycle would be five ’11 month annual’ cycles and that the low would be in August 2020 and that we had NOT SEEN THE RECESSION yet. We bought bonds at Christmas losing customers as we did. It looked like hell then but the world was snowed (I am old – do you know what that means?) Heisenberg gave us faith, but with virus,plus Europe plus tariffs plus the cycles this will make this a screaming disaster different than 2008 and probably worse. Don’t expect a low before the summer. We are getting US rates near zero – with bumps along the way.

  3. One PMI print and everyone is gloom and doom. What about that stellar Philly Fed print the other day? Or US housing still doing well, or US employment? Look at US railroad stocks! Not to mention our trigger ready Federal Reserve who despite claims to the contrary, never saw a QE program it didn’t like?

    It’s still a glass is half full kind of world and until I see people puking up a lung in Times Square, I see no reason to be bearish. The rest of the world is doing worse than the US and you can expect yield starved Japanese investors to continue to stampede into US equities.

    Possible continuation sell off on Monday if Bernie does well in Nevada, and you can fully expect him to be the next president if Trump messes up the virus response in the USA . It may be that Corona virus cannot take a foot-hold in places where squat toilets are not common ( feces might be a major transmission route.) Also a good portion of the world has not embraced the joys of toilette paper.*

    The market is just taking a breather, and I can prove it to you by pointing your attention to JNK.

    • @Bob I hope you are right, but all scientific evidence re COVID2019 is pointing toward in the other direction at this time. I just read a report based detailing how over 150K people escaped from the Wuhan quarantine over the past two weeks (based on cellular data). Warning signs are flashing orange with Iran, S. Korea, and Italy now reporting outbreaks. Based on the number of deceased, the number of infections is likely an order of magnitude higher infections than is being reported in those countries, and if major efforts are not immediately undertaken to stamp out further international spreading, the dominoes will start falling closer to home soon enough.

      You seem to be suffering from a combination of normalcy bias and entrenched BTFD mentality. Of course that has worked swimmingly over the past decade, but maybe the TFD has a long way go to this time… and perhaps “not selling until you see the whites of their eyes” might leave you standing at an unsafe distance.

      I’m not prepping for doomsday, but this is not business as usual, by any stretch, imho.

  4. Don’t say you haven’t been warned. This virus is a real BS with excellent ability to build super-spreaders.
    I hope it will reach us by autumn, but now looks like it can happen earlier.

  5. Headline employment is a lagging indicator. Employment internals are not looking so robust.

    Let’s also not forget the inverted yield curve, the inverted near term forward spread, the negative CEO and CFO surveys, the declining SP50 gross and EBIT margins, the flatlined NIPA profits . . .

    • “Let’s also not forget the inverted yield curve, the inverted near term forward spread, the negative CEO and CFO surveys, the declining SP50 gross and EBIT margins, the flatlined NIPA profits . . ”

      You could have said all that back in NOV 2019 and it still didn’t stop the market from rallying. It also didn’t stop Treasuries from rallying, although they are rallying because there is a global shortage of fixed income stuff. By all means buy Treasuries, they should do very well this year.

      We are in a liquidity driven rally which will gain steam from more rate cuts, more QE and a semi-permanent REPO facility that will expire in November, 2020.( my opinions). The Fed owns this rally and they know it.

      • If the economy and company fundamentals continue to worsen, at some point liquidity will lose its power to boost equities. Ref: Japan.

  6. CYCLES PLEASE! Not one positive tweet about them. Business cycles, monetary cycles, life and death cycles have been there for years (and forever in the lifecycle cases). What do you think Bitcoin and crypto-currencies are? They are cyclical manifestations that are becoming clear as our data manipulations improve. But we humans can do it. Why do you think these smart guys almost always win? They get it. Blockchain was here before any of us were born.

    About this cliff we have just fallen off of – the bungee cord will make us bounce but we are never going back to the jump-off spot. Even the Chinese effort is doomed. We will see where we are in a few months,

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