US Markit Flash Readings Rebound in September

Private sector output increased in September, with the rate of expansion slightly faster than the three and-a-half year low seen during August. The latest survey revealed modest rises in both service sector activity and manufacturing production. At 51.0 in September, up from 50.7 in the previous month, the seasonally adjusted IHS Markit Flash U.S. Composite PMI Output Index posted slightly above the crucial 50.0 no-change value. However, the latest reading was much softer than the average seen over the past decade (55.0).

The composite index is based on original survey data from IHS Markit’s PMI surveys of both services and manufacturing. Subdued business activity growth reflected a continued soft patch for client demand during September, with some survey respondents linked to less favorable underlying economic conditions. Moreover, the rate of private sector new business growth was the weakest since the series began in October 2009.

Latest data also signalled a sharper decline in backlogs of work, thereby suggesting a lack of pressure on business capacity. Some companies responded to subdued demand conditions by cutting back on staff hiring in September. The latest survey pointed to a drop in private sector payroll numbers for the first time since January 2010. At the same time, business expectations for the next 12 months picked up only slightly from the sevenyear low seen in August. Input prices decreased for the second month
running in September, which was largely driven by lower average cost burdens across the service economy. Meanwhile, prices charged by private sector firms were broadly unchanged during the latest survey period.

IHS Markit Flash U.S. Services PMI™
The seasonally adjusted IHS Markit Flash U.S. Services PMI™ Business Activity Index posted 50.9 in September, up slightly from 50.7 in August but still one of the lowest readings seen over the past three-and-a-half years. Mirroring the trend for the private sector as a whole, latest data indicated the slowest rise in new work since the survey began in October 2009. Subdued demand resulted in a faster decline in volumes of unfinished work and a reduction in employment numbers for the first time in just under ten years.

September data pointed to some relief from margin pressures as input costs dropped to the greatest extent since the survey began in late-2009, although the impact was limited by another slight reduction in average prices charged by service providers.
IHS Markit Flash U.S. Manufacturing PMI Adjusted for seasonal influences, the IHS Markit Flash U.S. Manufacturing Purchasing Managers’ Index recovered slightly to 51.0 in September, up from 50.3 in August and the highest reading since April. The latest reading signalled a modest overall improvement in manufacturing sector business conditions. Stronger rates of output and new order growth were the main factors helped to boost the headline PMI in September, alongside a slight upturn in staffing levels. However, export order books continued to weaken, as signalled by a drop in new work from abroad for the fourth time in the past five months. Manufacturers remained cautious in terms of their input buying strategies in September, as signalled by a further reduction in purchasing activity and lower pre-production inventory holdings. Stocks of finished goods were also depleted, which continued the downward trend seen since May. Meanwhile, latest data pointed to only modest rises in both input costs and factory gate charges in September, although in each case the rate of inflation accelerated since the previous month.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit, said:
“The survey indicates that businesses continue to struggle against the headwinds of trade worries and elevated uncertainty about the outlook. Although picking up slightly, the overall rate of growth in September remained among the weakest since 2016, commensurate with GDP rising in the third quarter at a subdued annualized rate of approximately 1.5%. Prospects also look gloomy, with inflows of new business down to the lowest since 2009 and firms’ expectations of growth over the coming year stuck at one of the most subdued levels since 2012.  “Jobs are now also being cut across the surveyed companies for the first time since January 2010, as firms have become more risk averse and increasingly eager to cut costs. At current levels, the survey employment index is indicative of non-farm payroll growth falling below 100,000. “Price pressures have meanwhile also eased, with both input costs and average selling prices for goods and services dropping again in September, painting a picture of the weakest corporate inflationary
pressures for a decade.

“Key to the recent deterioration has been a further spill-over of the trade-led slowdown in manufacturing to the service sector. Inflows of new service sector business almost stalled in September to register the smallest rise since the survey began in 2009. A ray
of light comes from manufacturing reporting some easing of headwinds, though factory conditions likewise remained among the toughest since 2009 to underscore the broad-based nature of the current lassitude.”

Markit Economics

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya