Markit’s Flash U.S. Services PMI was not just a weak reading in February. It was on the bad side of the growth-contraction breakeven point of 50. February’s non-manufacturing reading was down to 49.8. The prior month was at 53.2, and Bloomberg listed the Econoday estimate as 53.7.
What stood out here was that this was the weakest U.S. service sector performance for 28 months. That puts it back to the time of the government shutdown.
Market blamed the east coast snow disruption and the weakest gain in new work for 13 months acting just like a brake on the economy. There may have been a solid rate of jobs growth sustained in February, but Market also indicated that service providers reported the least favorable business outlook since August 2010.
Another issue here is that this was a flash reading, or a preliminary look, but it was from data collected between February 12 and February 23. That is rather fresh data.
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Here is what really stands out here. Markit said that the new weaker PMI shows a significant risk of the US economy falling into contraction in the first quarter. It represents that business activity stagnating as growth slowed for a third successive month. Also pointed out was that slumping business confidence and a larger downturn in order book backlogs suggest there’s worse to come.
Markit’s seasonally adjusted report said:
Reports from survey respondents suggested that softer underlying new order growth and uncertainty about the economic outlook had weighed on business activity in February. At the same time, disruptions related to heavy snowfall on the east coast were also a factor weighing on the headline index during the latest survey period.
New business growth moderated for the third month running in February. Moreover, the latest upturn in new work was one of the slowest since the survey began in late-2009. Service providers noted that some clients were more reluctant to commit to new projects, in part reflecting uncertainty about the economic outlook. This in turn led to the fastest reduction in backlogs of work since April 2014.
Looking ahead, service providers remain optimistic about the outlook for business activity over the next 12 months. However, latest data indicated that the degree of confidence dropped since January and was the lowest recorded for five-and-a-half years. Weaker business sentiment and softer new order growth did not prevent a further upturn in payroll numbers in February. Moreover, the rate of staff hiring was little-changed since January and above the average seen since the jobs recovery began six years ago.
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