Warnings indicate that growth is slowing in the US
Chris Williamson, chief economist at Markit, has commented on the firm’s latest US PMI and GDP data.
He said: “An upward revision to third quarter GDP is welcome news but has little bearing on US policy; it does little to change the story that the economy rebounded strongly in the spring after the weak patch seen earlier in the year. More important are the forward-looking indicators, which include a number of red flag warnings that growth is slowing amid headwinds of the strong dollar, slumping oil prices, financial market volatility and emerging market jitters.
“The more up-to-date survey data plays into the hands of dovish policymakers and will reduce the odds of interest rates rising any time soon.
“Updated official data shows that the economy grew at an annualised 3.9% pace in the three months to June instead of the 3.7% previously thought. The data therefore points to a slightly stronger rebound from the 0.6% pace seen in the first quarter; a period when port strikes and adverse weather had hit the economy. The GDP numbers therefore confirm the view that the US economy is in fine health. However, recent survey data raises questions over the extent to which growth is already waning.
“The flash Markit manufacturing and services PMIs indicate that economic growth will have slowed to around 2.2% in the third quarter. More worrying is the slump in the survey’s measure of business expectations about the year ahead, a weakening that commonly presages a slowing in the wider economy. Unless business confidence revives, GDP growth could slow further in the fourth quarter, possible quite markedly, as optimism is now running at one of the lowest levels seen since the global financial crisis.
“Average prices charged for goods and services are meanwhile falling at the fastest rate seen since the survey began in late-2009, suggesting that consumer price inflation will weaken in coming months and present little concern to policymakers.
“With warning lights about growth flashing, and prices falling at the fastest rate for at least six years, there’s a strong argument for the Federal Reserve Bank to hold off hiking interest rates.”