Services Sector Sample Reports Mixed

Markit's services PMI edged lower to 50.6 in October and is now at a three-year low and barely showing any growth. The report uses the word "stagnant" to describe growth in new orders and said export demand dropped further in the month. Backlogs are also down and employment in the sample decreased at the sharpest rate in 10 years. Price pressures remained flat and, in an isolated positive and despite all the weakness, year-ahead expectations improved. The 50.6 result for services together with the previously released 51.3 score for manufacturing makes for an October composite index of 50.9, also showing barely any growth.

...meanwhile...

ISM's non-manufacturing sample reports better-than-expected acceleration in composite activity, at a headline 54.7 for October which is just above Econoday's consensus range. Business activity (output) and employment contributed to the gain as did a nearly 2 point rise in new orders to 55.6 in a gain that reflects, not strength in exports which were flat, but strength in domestic demand. Despite the rise in new orders backlogs fell into contraction.

The headline gain probably overstates the strength of the report as business activity may have been propped up in the month by the draw down in backlogs, the latter not a favorable indication for future employment readings. Yet of the 18 industries tracked in the report, 13 did report composite growth led by agriculture in what is welcome news for a sector that has had an uneven year. Yet one of the sector's reporting contraction is mining which has also had an uneven 2019 following two prior years of strength.