The manufacturing slowdown has spread to the services sector.
On Thursday morning, we got two big readings on how the services sector performed during February:
- Markit Economics’ services purchasing manager’s index (PMI) showed that sector activity fell for the first time since October 2013.
- ISM’s non-manufacturing composite held up in expansionary territory, but showed that growth is decelerating.
Markit’s PMI was 49.7. It had been expected to print at 50, right on the divide between expansionary and contractionary territory, according to Bloomberg.
In the release, Markit chief economist Chris Williamson wrote, “Business activity stagnated in February as malaise spread from the manufacturing sector to services. The Markit PMIs are signalling a stagnation of the economy in February, suggesting growth has deteriorated further since late last year.”
Now to be clear, although the services sector accounts for about two-thirds of economic output, many other indicators are not flashing imminent recession signs.
And as Charlie Bilello of Pension Partners noted on Twitter, the ISM’s non-manufacturing index fell below the current level at various times from 2010 through 2014, and there was no recession.
Markit noted that the people it spoke to were feeling very uncertain about the economic outlook, and their clients were reluctant to commit to new projects.
And although there were seasonal, weather-related disruptions, respondents said there was a secular slowdown in new business growth that dampened business activity.
The composite output index for February was 50, showing that private-sector output was unchanged last month compared to January.
ISM’s non-manufacturing composite fell to 53.4 from 53.5, versus 53.1 expected.
This report showed that the services sector continued to grow, although at a slower pace, as only three of 17 industries reported contraction, including mining.
“The majority of the respondents’ comments continue to be positive about business conditions,” ISM noted. “The respondents are projecting a slight optimism in regards to the overall economy.”
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