Service Sector Continues Loss Of Momentum

Markit's sample of US service providers continues to report a loss of momentum from June's recovery peak, at a flash reading of 56.3 this month vs a final 57.1 in October and vs a flash that month of 57.3. Growth in incoming work, now at a 7-month low, is the chief factor behind the slowing. Yet despite the slowing in incoming work, backlog accumulation remains strong and is helping to lift employment growth which is at a 5-month high. Another plus is a 5-month high in the sample's business outlook.

One likely reason for the gain in confidence is moderation underway for input costs, the result of falling oil prices. Price traction for output, however, is probably not a plus as this reading is at its lowest point since July.

Today's report, specifically the erosion in new business, points to a lack of fourth-quarter punch for the economy. For the calendar, the report points to further moderation for next week's non-manufacturing report from the ISM which has also been coming down from its recovery peak, in this case hit in August. Note that the ISM's non-manufacturing report also includes construction and mining, the latter of which slowed sharply in October industrial production data.

Recent History Of This Indicator:
The Markit PMI services index posted well over breakeven 50 at 58.9 in September versus 58.5 at mid-month and 59.5 in final August. Backlog was at a record high for this sample, which goes back five years, as new business rose at what the report called a "sharp and accelerated pace." The report said employment continued to grow, though it didn't describe the rate of growth, and said input price pressures eased. The sample's outlook was very positive with about half expecting business activity to increase over the next year and only 5 percent seeing a reduction.