With all eyes focused squarely on Germany's dismal PMI prints, which have been in contraction for over half a year, the investing public forgot that the US economy is similarly slowing down. And moments ago it got a jarring reminder when Markit reported that the US manufacturing PMI unexpectedly tumbled into contraction territory, down from 50.4 last month, and badly missing expectations of a 50.5 rebound. This was the first print below the 50.0 expansion threshold for the first time since September 2009.
But wait, there's more, because whereas until now the US services segment appeared immune to the slowdown in US manufacturing, in August the service PMI tumbled to 50.9, down from 53.0 in July, matching the lowest print in at least 3 years, and well below the 52.8 consensus expectation. According to Markit, subdued demand conditions continued to act as a brake on growth, with the latest rise in new work the slowest since March 2016. This contributed to a decline in backlogs of work for the first time in 2019 to date.
Meanwhile, business expectations among service providers for the next 12 months eased in August and were the lowest since this index began nearly a decade ago.
As the report further notes, the decline in the headline PMI mainly reflected a much weaker contribution from new orders, which offset a stabilization in employment and fractionally faster output growth.
This however was offset by new business received by manufacturing companies, which fell for the second time in the past four months during August. Although only marginal, the latest downturn in order books was the sharpest for exactly 10 years. The data also signalled the fastest reduction in export sales since August 2009.
Survey respondents indicated that a drop in sales often cited a soft patch across the automotive sector, alongside a headwind to manufacturing exports from weaker global economic conditions. Meanwhile, manufacturing companies continued to trim their inventory levels in August, which was mainly linked to concerns about the demand outlook. Pre-production inventories fell for the fourth month running, while stocks of finished goods decreased to the greatest extent since June 2014 fastest reduction in export sales since August 2009.
Survey respondents indicated that a drop in sales often cited a soft patch across the automotive sector, alongside a headwind to manufacturing exports from weaker global economic conditions.
Commenting on the flash PMI data, Tim Moore, Economics Associate Director at IHS Markit said:
“August’s survey data provides a clear signal that economic growth has continued to soften in the third quarter. The PMIs for manufacturing and services remain much weaker than at the beginning of 2019 and collectively point to annualized GDP growth of around 1.5%.
“The most concerning aspect of the latest data is a slowdown in new business growth to its weakest in a decade, driven by a sharp...