Despite a collapse in European Manufacturing PMIs (led by Germany), and 3rd month of contraction in Japan PMIs; US PMIs were expected to modestly rebound in preliminary July data, but instead the picture was mixed:
- US Manufacturing PMI missed – printing 50.0 versus 51.0 exp and down from 50.6 in June
- US Services PMI beat – printing 52.2 versus 51.8 exp and up from 51.5 in June.
This manufacturing print is the lowest in 118 months.
At 51.6 in July, the seasonally adjusted IHS Markit Flash U.S. Composite PMI Output Index edged up from 51.5 in June and remained higher than the three-year low recorded during May.
Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:
“The overall picture of modest growth conceals a two-speed economy, with steady service sector growth masking a deepening downturn in the manufacturing sector. The survey’s gauge of factory production has slumped to its lowest since August 2009, and indicates that manufacturing output is falling at a quarterly rate of over 1%, led by an increasing rate of loss of export sales.
“The survey’s employment gauge has meanwhile fallen to a level consistent with 130,000 jobs being added in July, down from an average of 200,000, in the first quarter and 150,000 in the second quarter, as firm became increasingly cautious in relation to hiring. Manufacturers are shedding workers at the fastest rate since 2009 and service sector job creation is now down to its lowest since April 2017.
“Future prospects have also darkened to the gloomiest since comparable data were first available in 2012, suggesting that companies may look to tighten their belts further in coming months, dampening spending, investment and jobs growth. Geopolitical worries, trade wars and increasingly widespread expectations of slower economic growth at home and internationally have all pulled business optimism lower.”
“The survey data indicated that the economy started the third quarter on a disappointingly soft footing. The PMIs for manufacturing and services collectively point to annualized GDP growth of just 1.6%, up only very marginally from a lacklustre 1.5% indicated by the survey in the second quarter.”
Finally, we note former fund manager and FX trader Richard Breslow’s comments on the dismal data:
“It doesn’t seem like a tremendous leap of faith to worry that they are proving the point of the declining efficacy of existing policies in order to justify experimenting with some of the more outlandish proposals, like MMT, that are getting way too much airtime.”
Does make on wonder.