Survey data published by Markit Economics this week anticipates a weak US economic profile for May. Today’s flash estimate of the Services PMI for this month dipped modestly to 51.2, or just slightly above the neutral 50 mark that separates growth from contraction. The news follows Monday’s preliminary May numbers for the US Manufacturing PMI in May, which is close to a stagnant reading of 50.5. Taken together, the two updates suggest that economic activity decelerated in May.
“A deterioration in the survey data for May deal a blow to hopes that the US economy will rebound in the second quarter after the dismal start to the year,” says Chris Williamson, Markit’s chief economist, in today’s report. “Service sector growth has slowed in May to one of the weakest rates seen since 2009, and manufacturing is already in its steepest downturn since the recession.
Blending the manufacturing and services PMIs into a composite index currently projects GDP growth that’s almost as slow as the first quarter’s tepid 0.5% rise (seasonally adjusted annual rate), according to Markit. “Having correctly forewarned of the near-stalling of the economy in the first quarter, the surveys are now pointing to just 0.7% annualized GDP growth in the second quarter, notwithstanding any sudden change in June,” advises Williamson.
The soft PMI data implies that the Atlanta Fed’s May 17 nowcast, which projects Q2 GDP to grow at relatively healthy 2.5%, is vulnerable to a downgrade in tomorrow’s scheduled update (May 26).
Meantime, keep in mind that the May economic profile is still largely a mystery based on hard data. But for the moment, the early clues for this month inspire managing expectations down.
For perspective, let’s recall that the April macro profile shows that the macro trend weakened, based on the three-month average of the Chicago Fed’s National Activity Index. Still, last month’s reading of this economic benchmark remained well above the tipping point that marks the start of recessions. Ditto for last week’s economic profile for April.
The question is whether the worrisome PMI figures will find confirmation in the upcoming economic reports? The answer begins to roll out with tomorrow’s weekly update on jobless claims and the monthly release on durable goods orders, followed by next week’s data on personal income and spending.
Meantime, the preliminary numbers for May via the PMI reports leave room for wondering if the expected Q2 rebound is susceptible to an attitude adjustment in the weeks ahead.