Despite disappointing expectations, May Final Services PMI rose for the second month in a row with job creation and new orders accelerating, but as Markit notes, “the PMI surveys for manufacturing and services collectively indicate only a modest pace of economic growth so far in the second quarter.” While PMI popped a little, ISM also disappointed and fell back from its April rebound, with a big drop in prices paid and new orders (but surge in employment).
The full ISM breakdown shows 6 categories declined: new orders, business activity/production; deliveries; prices; export orders, imports; and 4 categories rose: employment, inventories, backlogs, inventory sentiment
New Orders dumped…
So it seems tumbling new orders are good for employment…
Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:
“Although service sector business activity picked up in May, the PMI surveys for manufacturing and services collectively indicate only a modest pace of economic growth so far in the second quarter.
“However, the key message from the PMI is that the economy is enjoying steady, albeit unspectacular, growth, and that the pace of expansion has been slowly lifting higher in recent months.
“Hiring meanwhile remains on a firm footing, with the survey’s employment indicators running at levels consistent with around 160,000 jobs added to the economy in May.
“In another sign of the economy’s underlying steady expansion, average prices charged for goods and services is running at the second highest in almost two years, indicating that rising demand is helping restore some pricing power.”
Based on the composite PMI, US Q2 growth is on target for around 2%…
“Historical comparisons with GDP indicate the PMI is signalling second quarter GDP growth of just over 2%, suggesting there may be some downside risks to IHS Markit’s current forecast of a GDP growth rebound to just over 3% in the second quarter.
Notably different from the exuberant hope originally forecast by The Atlanta Fed.