Service-Sector Sample Reports Show Mixed Growth

Markit's US samples are reporting only marginal growth, barely above 50 at 50.7 for today's release of the final services PMI for August and at 50.3 for the manufacturing PMI released earlier this week. The composite index, reflecting the dominant size of services relative to manufacturing, matches the services index at 50.7. These are the lowest rates of growth for these samples since early 2016.

Growth in new orders for services was no better than marginal in August and at a three-year low with the sample reporting a decrease in foreign demand and moderation in corporate spending. Backlogs are being worked down with job creation, which is often tied to high or low levels of backlogs, the softest in nearly 10 years. Understandably, year-ahead expectations are also at a series low. And in a confirmation that demand is soft, both input costs and selling prices fell in August with contraction for the former a first in the 10-year history of the services series.

On the plus side, the services sample reports sustained growth in consumer demand, a factor that increasingly is becoming the central strength of the US economy.

...meanwhile...

In the best showing since May and a reminder that the domestic US economy remains solid, ISM's non-manufacturing index easily beat expectations in August at 56.4. New orders are the big news in the report, jumping more than six points and over 60 at 60.3. And these orders were helping August's business activity index (akin to a production index in manufacturing) which rose more than eight points to 61.5. Underscoring the breadth of August's strength, 16 of 17 industries tracked in the survey reported composite growth in the month.

Elsewhere in the data, however, the news is less robust including a slowing rate of job creation, down three points to 53.1, and slowing for export orders, down three points and barely over breakeven 50 at 50.5. Backlog orders at 49.0 and 4.5 points lower than July are another weakness. In a positive sign for demand, pressure in input costs firmed, to 58.2 versus July's 56.5.

Today's headline contrasts very sharply with ISM's manufacturing index which, in data released Tuesday, unexpectedly fell into contraction at 49.1. The separation between the two indexes underscores 2019's economic theme -- strength in domestic demand versus trouble for global demand and resulting trouble for domestic manufacturing. And the separation also underscores the developing risk at play, that slowing in manufacturing will eventually spillover into services. But for August, negative spillover isn't yet apparent.