Is US Slipping into a Recession?
Looking for signs that the US is slipping into a recession in the wake of recent turmoil in the global equity markets?
You won’t find a smoking gun in today’s initial August estimate of economic activity in the services sector from Markit Economics. The group’s flash data for its US Services PMI ticked down to 55.2 this month, slightly below July’s 55.7 reading. But that’s still well above the neutral 50.0 mark. The bottom line: the crucial services sector—the dominant source of employment in the US—continues to expand at a healthy if slightly slower pace, according to today’s headline PMI number.
A potential warning sign for the months ahead is the deceleration in the rate of growth for new business volumes in services–a downshift that marks the slowest pace since January. But that was offset to a degree with job creation in services sticking to a “solid pace” in August—unchanged from the previous month. “Moreover, the latest increase in payroll numbers marked five-and-a-half years of sustained job creation across the service economy,” Markit advised. “Higher staffing levels were linked to ongoing expansion plans and efforts to boost capacity.”
Today’s PMI report follows recent news that the ISM Non-Manufacturing Index—a competing benchmark for the services sector—surged to a record high in July (albeit for an index that begins in 2008).
Bloomberg reported earlier this month that
While it is “a bit unusual” to see such elevated readings at this time of the year, “all indications are that we should see growth continue,” Anthony Nieves, the ISM’s survey chairman, said on a conference call with reporters after the release. The service sector “is having a nice uptick.”
By contrast, last week’s preliminary estimate of the manufacturing PMI for August reflected substantially slower growth—the slowest, in fact, for 22 months. But for the moment, the stumble in manufacturing looks contained, with minimal evidence that the weakness is spilling over into services.
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Nonetheless, it’s premature to dismiss the warning via global markets over the past week or so. But for the moment, there’s not a lot of support in the macro numbers for making dark forecasts for the US business cycle.
Indeed, today’s PMI release follows upbeat numbers on the big-picture trend through July via yesterday’s update of the Chicago Fed National Activity Index and last week’s revised data on business cycle risk via The Capital Spectator’s proprietary indexes. Meantime, the current projections for third-quarter GDP growth in the US suggest a mild setback at worst relative to Q2 data.
It would be surprising if we didn’t see a degree of fallout for the US in the macro profile in the months to come. But this much is clear today: the US economy entered the recent market turbulence with a modest tailwind of growth.