In a recent report from IHS Markit, the Purchasing Managers’ Index (PMI) has revealed faltering US business activity and a slowdown in US private sector output growth in May.
IHS Markit’s Flash US Composite PMI Output Index, which accounts for services and manufacturing data from IHS Markit’s PMI surveys, came in at 50.9 in May, down from 53.0 in April. May’s low composite index indicates the slowest expansion in overall business activity since May of 2016.
Independently, the Flash US Services PMI Business Activity Index highlighted a notable decrease in service sector business activity, falling from 53.0 in April to 50.9 in May and reaching a 39-month low. The Flash US Manufacturing PMI also saw losses in May, reaching 50.6 (down from 52.6 in April) and hitting a 116-month low.
The report attributes May’s low levels of private business output increase to softer demand conditions and fewer new orders from both domestic and foreign clients, stating that May saw the smallest rise in new business since the series began in October 2009.
As a result of this, IHS Markit found that firms have slowed their hiring, with the latest increase in employment being the smallest in just over two years. Companies reporting to IHS Markit also reported the first decline in backlogs of work since June 2017 as a result of weak demand.
As business activity fell in May, so did expectations for a rise in output over the coming 12 months. The report found that business expectations fell to their lowest levels since the series began in July 2012, attributing low optimism to increased uncertainty surrounding global trade tensions.
Chris Williamson, chief business economist at IHS Markit, comments: “Growth of business activity slowed sharply in May as trade war worries and increased uncertainty dealt a further blow to order book growth and business confidence. A decline in the headline ‘flash’ PMI to its lowest for three years pushes the survey data down to a level historically consistent with GDP growing at an annualised rate of just 1.2% in May. Worse may be to come, as inflows of new business showed the smallest rise seen this side of the global financial crisis”
He continues: “The slowdown has been led by manufacturing, but shows increasing signs of spreading to services. The survey data have been consistent with falling manufacturing output since February, but suggest that the sector’s woes intensified in May to mean factories will therefore likely act as an increasing drag on the economy in the second quarter. However, an additional concern is the spreading of the malaise to the service sector, growth of which slumped in May to one of the weakest since the global financial crisis. With the service sector’s performance being a key gauge of the health of domestic demand, this broadening-out of the slowdown poses downside risks to the outlook.”