On the eve of the worst week for US stocks since the crisis, IHS Markit delivered a stunning set of flash PMI prints for the US.
For the first time in four years, the services sector contracted, and the composite gauge dropped below the 50 demarcation line too. Rightly or wrongly, market participants took the news to mean the US economy was already feeling the pressure from the coronavirus outbreak.
The final readings, out Wednesday, were unchanged: 49.4 on the services gauge, and 49.6 on the composite index. That makes a blowout ISM non-manufacturing print look exceptionally anomalous. ISM services printed 57.3 for February, versus an expected 54.8.
As you can see, that 8-point discrepancy is rather large, and to the skeptics among you, will suggest that ISM is “lying”.
Of course, you should note that ISM manufacturing was playing “bad cop” to IHS Markit’s factory gauge “good cop” for months. Data out Monday showed ISM’s factory gauge remained in expansion territory for a second consecutive month.
You can draw your own conclusions, but just note that naysayers will abound, and they’ll have the Markit gauge to point to.
“The US service sector took a knock from the coronavirus outbreak and growing uncertainty about the economic and political outlooks in February”, Chris Williamson, Chief Business Economist at IHS Markit, said Wednesday. “The fall in the headline index measuring business activity levels was the second-largest seen since the global financial crisis over a decade ago, exceeded only by the brief slump in activity during the 2013 government shutdown”.
Don’t tell ISM.
From ISM
WHAT RESPONDENTS ARE SAYING
- “[The] coronavirus has increased lead times for the critical items.” (Construction)
- “[First-quarter numbers] are slightly behind projections, but still positive.” (Finance & Insurance)
- “Because of the coronavirus, we are looking at major back-orders in masks, gloves, and PPE (personal protection equipment). A lot of the masks are manufactured in China, so not only are we facing a shortage because of the virus, there is a drastic shortage because the masks are manufactured where the virus originated.” (Health Care & Social Assistance)
- “Business is rapidly improving.” (Management of Companies & Support Services)
- “The business outlook remains positive, but foggy due to the Chinese coronavirus outbreak. The mining industry is well dependent on Chinese consumption. On the other side, it is difficult to [make] sourcing decisions, since it is not clear how long China will need to return to normal production capacity, and if it is worth it to pay more from other countries.” (Mining)
- “The outlook appears positive, as our order book is nearing full capacity for the first half of 2020.” (Professional, Scientific & Technical Services)
- “Construction activity appears to be getting off to a good start for 2020.” (Real Estate, Rental & Leasing)
- “A post-holiday slow period for retail. Business is strong overall; however, volume and inventories are lower due to the season. Pricing is still in check, with specialty labor the primary price risk.” (Retail Trade)
- “A shortage of workers at several levels is impacting the quality of employees we are looking to hire for capital projects we need to start.” (Transportation & Warehousing
ISM® NON-MANUFACTURING SURVEY RESULTS AT A GLANCE COMPARISON OF ISM® NON-MANUFACTURING AND ISM® MANUFACTURING SURVEYS*
FEBRUARY 2020
| Non-Manufacturing | Manufacturing | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Index | Series Index Feb | Series Index Jan | Percent Point Change | Direction | Rate of Change | Trend** (Months) | Series Index Feb | Series Index Jan | Percent Point Change |
| NMI®/ PMI® | 57.3 | 55.5 | +1.8 | Growing | Faster | 121 | 50.1 | 50.9 | -0.8 |
| Business Activity/ Production | 57.8 | 60.9 | -3.1 | Growing | Slower | 127 | 50.3 | 54.3 | -4.0 |
| New Orders | 63.1 | 56.2 | +6.9 | Growing | Faster | 127 | 49.8 | 52.0 | -2.2 |
| Employment | 55.6 | 53.1 | +2.5 | Growing | Faster | 72 | 46.9 | 46.6 | +0.3 |
| Supplier Deliveries | 52.4 | 51.7 | +0.7 | Slowing | Faster | 9 | 57.3 | 52.9 | +4.4 |
| Inventories | 53.9 | 46.5 | +7.4 | Growing | From Contracting | 1 | 46.5 | 48.8 | -2.3 |
| Prices | 50.8 | 55.5 | -4.7 | Increasing | Slower | 33 | 45.9 | 53.3 | -7.4 |
| Backlog of Orders | 53.2 | 45.5 | +7.7 | Growing | From Contracting | 1 | 50.3 | 45.7 | +4.6 |
| New Export Orders | 55.6 | 50.1 | +5.5 | Growing | Faster | 4 | 51.2 | 53.3 | -2.1 |
| Imports | 52.6 | 55.1 | -2.5 | Growing | Slower | 2 | 42.6 | 51.3 | -8.7 |
| Inventory Sentiment | 59.3 | 54.9 | +4.4 | Too High | Faster | 272 | N/A | N/A | N/A |
| Customers’ Inventories | N/A | N/A | N/A | N/A | N/A | N/A | 41.8 | 43.8 | -2.0 |
| Overall Economy | Growing | Faster | 127 | ||||||
| Non-Manufacturing Sector | Growing | Faster | 121 | ||||||
Speaking from the perspective of the largest non-public travel agency in the world, business is dead, buried, and forgotten. We have 1000+ agents essentially twiddling their thumbs waiting for this to pass. It’s not getting any better.