Growth across the global services sector slowed to a crawl last month, casting renewed doubt on the prospects for a global economic recovery in 2016.
The Markit-JP Morgan global services business activity index fell to 50.7, suggesting growth in the sector all but stalled over the month.
The index now sits at the lowest level seen in 40 months, underlining that point.
The commentary from Markit makes for sobering reading.
“Weaker rates of growth were signalled by the financial, business and consumer services sub-sectors, with output barely rising in either of the latter two,” said Markit. “Although the increase in activity at financial service providers was comparatively solid, the rate of growth was only mild and below the long-run series average.”
In other words, the growth recorded in February was not only tepid but largely driven by one sector, financials.
Given the volatility in financial markets at the beginning of the year, and the potential for even more to come, that hardly bolsters confidence.
As has been well documented, one of the main catalysts behind the sharp weakening in activity levels was a sudden, and surprising, decline in the largest component in the survey, the United States.
Its services PMI gauge skidded to 49.7, indicating that activity levels contracted for the first time since October 2013, a month that coincided with the federal government shutdown.
Along with weakness in France, Hong Kong, and Brazil, it ensured a sharp deceleration in global activity levels
As shown in the table below, supplied by Markit, all components that make up the index – with the exception of input prices – deteriorated from January. Growth in new business, hiring and future activity levels all slowed while there were outright contractions recorded in work backlogs and output prices.
Perhaps more worrying that the weakness in services was that it was mirrored by the global manufacturing sector. In February the Markit-JP Morgan manufacturing purchasing managers index (PMI) fell to a 39-month low of 50, indicating that activity levels were unchanged from a month earlier.
Growth in services, the linchpin of many developed nations and a key determinant of economic growth, all but slowed to a crawl while activity levels in manufacturing stalled.
Unsurprisingly, as a result of the two, the separate Markit-JP Morgan global all-industry output index – a composite indicator that combines the services and manufacturing reports – fell to a 40-month low of 50.6 in February.
Activity levels are decelerating at a time when the index remains firmly below its long-run average.
As Markit headlined its February composite report, there was a “broad-based slowdown of global economic growth in February.”
While some tend to dismiss the PMI reports, preferring to rely on the hard data such as GDP and industrial output, among others, the survey has to be given some weight. It surveys over 16,000 firms from over 30 countries, including the US and China, which accounts for an estimated 87% of total global economic growth.
They are saying activity levels are stalling. That alone should be of concern.