Services Sector Sample Reports Show Softness

Still above water but uncomfortably so is the indication from September's PMI samples, at a composite 51.0 reflecting a 51.1 monthly final for manufacturing posted on Tuesday together with today's posting of the services final at 50.9. Tuesday's manufacturing report was marked by a sharp drop in export orders with exports in today's services data falling for a second straight month and at the sharpest rate in five years of available data. Total new business for the services sample, in 10 years of available data, is also at a record low.

The drop in orders is making for a scaling back in hiring with this reading for the services sample posting a sharp contraction and its first contraction since February 2010. Another record low is input cost pressure with selling prices also moving lower. Confidence in the outlook is the second weakest on record.

Anecdotal samples, such as today's report or Tuesday's ISM data on manufacturing, are clearly picking up a down move in their samples.

...meanwhile...

ISM's non-manufacturing sample continues to report monthly expansion but at the lowest rate since August three years ago. September's 52.6 result, like Tuesday's 47.8 disappointment for ISM's manufacturing index, is well beneath Econoday's consensus range and reflects significant softness in employment which, at 50.4, is still above 50 and still indicates net hiring but is down nearly 3 points from August which is an unfavorable indication for tomorrow's employment report.

New orders also slowed abruptly in September, down 6.6 points but still showing tangible growth at 53.7. And new export orders, which are important for non-manufacturers, also held above 50 with a 1.5 point gain to a tangibly positive level of 52.0. And total backlog orders are also a positive, up 5.0 points to 54.0 in a reading that should limit further slowing in employment and should keep business activity, which fell more 6 points to 55.2, at a respectable level for the next report this time next month.

Report after anecdotal report, whether from the ISM or Markit Economics, are increasingly signaling slowing if not contraction underway right now, representing a downward pivot from mid-year. These point to a pending turn lower for definitive data and risk putting a lid on third-quarter GDP, particularly components outside of consumer spending.