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Markit U.S. Services PMI at Twelve Month Low in December

Posted by Joseph Trevisani on Dec 18, 2015 2:27:45 PM

Markit's preliminary reading on U.S. service industries for December shows a sector considerably weaker than expected.

The British econometrics firm's purchasing managers' index (PMI) came in at 53.7 for December, well below the 56.0 consensus estimate and November's 56.1 score. It was the weakest measure in 12 months and follows the  firm's manufacturing index which at 51.3 in December was also far below the 52.6 forecast, Novembers' 54.0 result and was the lowest tally since November 2014.

U.S. service companies comprise upwards of 85 percent of the American economy. This sector has been performing relatively well despite the prolonged slump in manufacturing and had been expected to keep GDP near 2.0 percent in the fourth quarter.

Manufacturing exports have been hurt by the strong dollar and global economic slowdown that has hit in China, Japan, emerging markets and Europe at the same time. 

New orders in services dropped to their weakest level since January 2015 and the employment index declined. The measure of business expectations for the year ahead plunged to its lowest since August 2010. 

"A lack of inflationary pressures, slowing growth and a drop in business confidence to a five-year low are all disappointing news for an economy which has seen the first U.S. interest rate hike for almost a decade,"  wrote Markit chief economist Chris Williamson in the comments accompanying the release. 

"The Fed projections point to a further four quarter point hikes in 2016, but with data as weak as these, we’re likely to see a far less aggressive rate hike progression," noted Mr. Williamson.

"The    survey    data    are    consistent    with    gross domestic product rising at an annualized rate of 1.8% in the fourth quarter. That’s down only slightly from  the  2.1%  pace  observed  in  the  third  quarter, but   the   survey   shows   a   more   severe   slowing towards  the  end  of  the  fourth  quarter,  with  an annualized  GDP  growth  rate  of  just  1.4%  indicated for December alone," said Mr. Williamson.

Annualized U.S. GDP growth for the first three quarters has been 2.2 percent.   The Atlanta Federal Reserve's GDPNow model had the expansion continuing at a 1.9 percent pace in the fourth quarter in its latest estimate on December 16th.  But with the service sector now joining manufacturing industries in relative decline, it is likely that final quarter projections will be revised down.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets

Charts: FX Street

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