With Manufacturing PMI at multi-year lows and trending lower, why would anyone be surprised that, amid plunging profits in retailers and weakness in restaurant performance indices, Markit’s preliminary Services PMI for April would bounce for the 2nd month in a row to 52.1. However, as Markit notes, despite th emodest pickup, “growth is clearly far more fragile than this time last year.”
Dead cat bounce?
As Markit details,
“The upturn in the rate of growth of business activity and increased inflows of new orders suggest the economy should see GDP rise at an increased rate in the second quarter, but growth is clearly far more fragile than this time last year.
“Viewed alongside the recent poor performance of the manufacturing sector, which reported its worst month since October 2009, the survey suggests the economy grew at an annualized rate of just 0.8% at the start of the second quarter, only marginally above the pace signalled for the first quarter.
Survey responses indicate that persistent weak demand from domestic and overseas customers, the struggling energy sector, the strong dollar and election worries are all eating into business optimism.
“The current pace of growth is also only being supported by price reductions, as an increasing number of firms offer discounts to win sales.
“Job creation has also slowed as a result of costcutting pressures and uncertainty over the outlook, but remains solid. The surveys point to another 150,000 non-farm payroll increase in April, as robust service sector hiring continues to offset factory job losses.”
Additionally, growth momentum remained much weaker than that seen on average since the survey began in late-2009.
Survey respondents suggested that subdued client demand and less favourable underlying economic conditions had weighed on business activity at their units in April. Reflecting this, latest data signalled only a marginal rebound in new business growth from the survey-record low recorded in March.
A relatively weak upturn in new work contributed to slower job creation across the service economy in April. Payroll numbers have expanded continuously for just over six years, but the latest increase was the softest since October 2015 and weaker than the post-crisis trend. At the same time, service providers indicated another modest drop in backlogs of work in April, suggesting a lack of pressure on operating capacity.
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