Survey Data For US Services Sector Hint At Mild Q2 Rebound

Yesterday’s discouraging numbers on job growth in April via the ADP Employment Report raise doubts about a rebound in US growth for the second quarter. But if you’re looking for reasons to keep hope alive, Wednesday’s survey data for the services sector fits the bill.

The ISM Non-Manufacturing ticked higher last month, rising to a four-month high and signaling that the services sector, which dominates US economic activity, continues to expand at a moderate pace at the kick-off to the second quarter. Note that the employment benchmark increased in April as well, rising to 53.0—comfortably above the neutral 50 mark, as the chart below shows.


Markit’s PMI numbers for the US services sector also favor a mildly optimistic outlook. The final estimate for this index rose to a three-month high in April, pointing to “a sustained recovery in overall business conditions across the U.S. service sector,” Markit said in a statement. The PMI bounce implies that GDP growth will improve, albeit sluggishly, rising to a 1.0% pace, up from Q1’s stall-speed advance of just 0.5%–a two-year low.

Nonetheless, Markit’s chief economist, Chris Williamson, warns that growth in the services sector is fragile. He notes too that the softer level of confidence, despite the latest bounce, “is beginning to hit the labor market, with the survey signaling 160,000 extra jobs being created in April, down from an average of 200,000 in the first three months of the year.”

The question is whether yesterday’s ADP data–and the deceleration in labor-market growth in services–marks a darker phase for the labor market? We’ll have a clearer view after today’s updates on job cuts in April via Challenger, Gray (due at 7:30 am eastern) and the weekly report on jobless claims (8:30 am eastern). With those numbers in hand, we’ll have additional context for anticipating tomorrow’s official update on April payrolls, which is expected to reflect stronger growth vs. the ADP estimate, based on’s consensus forecast.

Some economists are looking for even stronger numbers tomorrow. USA Today reports:

High Frequency Economics, Barclays Capital and JPMorgan Chase expect Labor to announce job gains of 240,000 to 250,000 Friday, above the 209,000 monthly average so far this year. They largely point to initial jobless claims, a reliable gauge of layoffs, that continue to hover near 42-year lows.

Meanwhile, the Atlanta Fed’s latest nowcast (as of May 4) is projecting that GDP growth for Q2 will rise to 1.7%. Better, but still sluggish.

The question is whether there’s a reason to tweak the outlook for growth, up or down, relative to the GDPNow forecast? The next installment of the “answer” awaits in the incoming numbers over the next 24 hours.