Stark Warning: US Services Sector Reports ‘Falling Sales Due To Re-Imposed Lockdowns’

In yet another disconcerting sign for the fledgling rebound in the US economy, flash PMI readings for July came in below expectations Friday, perhaps suggesting the stalled re-opening push is starting to bite.

IHS Markit’s services gauge printed 49.6, up from June, but still in contraction territory and shy of the 51 the market was looking for.

The manufacturing print was 51.3. That too is a miss (consensus was looking for 52).

“New business… was weighed down by reports of challenging demand conditions, especially among service providers, with some struggling with the reintroduction of lockdown measures”, the color accompanying the release reads. “Service sector firms registered a faster decline in new orders in July”.

Do note that the mighty US services sector has been in contraction for six months now. Last I checked, that still equates to half a year.

Frankly, it’s a bit surprising that markets weren’t more alarmed by the rather explicit connection between these misses and the reimposition of lockdowns and other containment protocols.

Perhaps algos don’t parse the actual color.

“While the stabilization of business activity in July is welcome news, the lack of growth is a disappointment”, IHS Markit Chief Business Economist Chris Williamson, said, adding that,

A renewed acceleration in the rate of loss of new business raises concerns that demand is faltering. Many companies, notably in consumer-facing areas of the service sector, linked falling sales to re-imposed lockdowns. Firms’ costs have meanwhile spiralled higher, surging at the steepest rate for seven years in the service sector, in part due to the additional burdens of safeguarding against the coronavirus. Thankfully, the job-shedding seen over the prior four months has come to an end, but companies remain wary of taking on more staff given the weakness of current order books.

That sounds decidedly foreboding.

You’ll note that it comes on the heels of a disappointing read on University of Michigan sentiment.

At the very least, market participants should be cognizant of the possibility that the July jobs report and retail sales figures for this month will disappoint.

All the more reason for Congress to get moving.

Read more: ‘Without Action, Another Plunge Is Likely’ – Bulls Tested By Dour Color From Sentiment Survey

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