The Markit manufacturing and services composite index for the US fell to 53.2 in March from 54.1 in February. That level is now the lowest since September and thus gives back all of the post election gain. For reference, it was 54.9 in October, the same level in November and got as high as 55.8 in January. Breaking down the components has manufacturing at 53.4, matching the level seen in October and services at 52.9 is barely above the 52.3 seen in September and below the 54.8 print in October.
One of the factors in the weakness was “the latest rise in payroll numbers was only marginal and the weakest for six months.” Also, “survey respondents noted that a softer increase in new business had acted as a brake on growth in March…Some firms commented on greater caution among clients, despite a supportive economic backdrop so far in 2017.” Cost pressures though eased both on the input side and the ‘prices charged’ side.
Bottom line, I want to caution by saying Markit’s data is relatively new without much historical data so we do take this somewhat of a grain of salt. That said, it’s still a survey of business sentiment that should be paid attention to considering the bout of optimism post election. If this data is accurate, there has been an obvious cooling of confidence. We certainly know the actual data in hand has lent itself to Q1 GDP growth of possibly no better than 1%. Are companies feeling better but not acting upon it just yet? Is it just the reality that we are late cycle in this recovery and we’ve pulled forward so much economic activity that it’s just natural to slow down? Are companies worried about higher interest rates and thus reigning in some optimism because corporate debt has exploded higher over the past 7 years? With the auto sector such a huge contributor to economic growth since the recession and now signs of sales and delinquencies rolling over, is the ripple effect filtering into other areas? I would say all of the above.