U.S. service providers indicated a sustained upturn in overall business activity during May, but the rate of expansion was only marginal and the weakest for three months. Survey respondents cited relatively subdued client demand and less favourable domestic economic conditions as key factors weighing on business activity in May.
The seasonally adjusted Markit Flash U.S. Services PMI™ Business Activity Index registered 51.2 in May, to remain above the crucial 50.0 no-change value for the third consecutive month. However, the index was down from 52.8 in April and much weaker than the long-run survey average (55.6).
In line with the trend for business activity, service providers also recorded a renewed slowdown in growth of incoming new work during May. The latest expansion of new business intakes was only modest and one of the weakest recorded since the survey began in late-2009. Some firms commented on a cyclical slowdown in investment spending and continued unwillingness among clients to commit to new projects.
Subdued demand also contributed to another reduction in backlogs of work across the service economy, with the rate of decline accelerating to its fastest for just over two years. At the same time, payroll numbers increased only marginally in May, which some firms attributed to heightened uncertainty about the outlook for client spending. Jobs growth has now slowed in three of the past four months, with the latest upturn the weakest since December 2014.
May data highlighted a renewed fall in business optimism across the service economy. Reflecting this, the balance of service sector firms forecasting a rise in business activity over the year-ahead eased to its lowest since the survey began in October 2009. Anecdotal evidence suggested that uncertainty related to the presidential election and concerns about the general economic outlook had continued to weigh on business confidence.
Meanwhile, input price inflation picked up for the second month running in May. The latest rise in cost burdens was the fastest since July 2015, but still softer than the survey average. In response to higher operating costs, service providers noted a marginal rise in their overall output charges during May.
At 50.8 in May, the seasonally adjusted Markit Flash U.S. Composite PMI Output Index was down from 52.4 in April and pointed to only a marginal expansion of private sector business activity. Moreover, the latest reading was the second-weakest since October 2013.
The modest upturn in service sector activity (‘flash’ index at 51.2 in May) helped to offset a decline in manufacturing production for the first time since September 2009 (‘flash’ output index at 49.1 in May).
Having correctly forewarned of the near-stalling of the economy in the first quarter, the surveys are now pointing to just 0.7% annualised GDP growth in the second quarter, notwithstanding any sudden change in June.
A deteriorating order book situation and waning business optimism have meanwhile led to a further pull-back in hiring as companies scaled down their expansion plans. The surveys are signalling a non-farm payroll rise of just 128,000 in May.