Markit PMI Increases: No Q4 Recession?

Solid October Existing Home Sales

Many predicted strong results from the existing and new home sales reports this week. October existing home sales reading missed estimates, but increased from September. This was a good report. Sales increased from 5.36 million to 5.46 million which is a 1.9% increase which missed estimates by 20,000. 

Last month’s report had a 2.5% monthly decline and a 3.5% yearly increase. It had 4.6% yearly growth as it accelerated. This reading was the 3rd highest of 2019. Yearly comps will be getting easier which means double digit growth could be coming.

As you can see from the chart below, sales in November, December, and January were 5.21 million, 5 million, and 4.93 million. Expectations for sales in the next 3 months will depend partially on interest rates. If the economy accelerates in 2020, we could see another cycle high in existing home sales. That also depends on inventories which have been low recently. Inventories were only 3.9 months which was down from 4.3 months last October. 

Recent increase in permits implies more inventories are coming. The market is balanced when there is 6 months of inventory. Therefore, this is a sellers’ market. It explains why price growth was strong. Median sales price was up 6.2% to $270,900. Single family sales were up 2.1% to 4.87 million (yearly growth 5.4%). Yearly price growth was 6.2% to $273,600. Condo sales fell 1.7% yearly to 590,000; median prices were up 5.6% to $248,600.

Some Evidence Of A Recovery

There has been a dearth of evidence that the economy would have an good Q4. That’s why so many tracking estimates had growth coming in below 1%. Personally, I saw growth coming in a bit higher. This prediction was supported by the November flash Markit report which had been bearish in the past few months. 

As you can see from the chart below, the composite flash PMI increased from 50.9 to 51.9. That’s a strong increase. As the chart shows, this PMI no longer is consistent with about 1% economic growth. In the comment section of this report, it stated the composite index is consistent with 1.5% GDP growth and monthly job creation 100,000. 

It’s ironic to see this modest optimism just as jobless claims have increased. Markit report had been one of the most bearish signals and jobless claims had been one of the more bullish indicators.

Both sectors of the economy improved according to Markit. Manufacturing reading increased from 51.3 to 52.2 which is a 7 month high. And the manufacturing output index increased from 52.4 to 53.1 which is a 10 month high. This is very different from the October ISM PMI and the industrial production report. 

Maybe Credit Suisse’s prediction that the manufacturing sector will bottom in Q4 will be correct. If the ISM PMI increases in November, the leading indicators index will show higher yearly growth. A bottom in yearly growth could be 0.3% like it was in 2016. Markit services PMI was solid unlike October. PMI was up from 50.6 to 51.6 which is a 4 month high. As we found out last month, a spike in the manufacturing PMI can’t push the composite much higher without services improving as well.

In the service sector, new business was up, but below where it was at the start of the year. There’s still plenty of room for this sector to improve if this is a cyclical upturn. 

Employment increased for the first time since August. 

Job creation was barely positive. But that’s a good start as the economy tries to improve. Despite hiring growth improving, optimism fell and was historically very weak. Input costs rose slightly and selling price growth was up.

In the manufacturing sector, production and new orders growth improved sharply. Backlogs increased for the first time since June. It seems like manufacturing is improving at a quicker rate than services. Hopefully, it leads the service sector higher. Maybe the global economy is helping manufacturing and the rate cuts will help the service sector. If that’s the case, we have a few months to wait before the services PMI spikes to the mid 50s. 

Manufacturing PMI could get to the mid 50s in a month. And manufacturing hiring growth was the quickest since March. Input costs rose. Increased demand let firms pass some price increases down to buyers. Even though the manufacturing PMI was up solidly, just like the service sector, 1 year optimism fell. Optimism fell because of economic uncertainty. This could be because of the trade war, the 2020 election, or just general global uncertainty.

Leading Index Growth Spikes

Unlike the Conference Board leading economic indicators the ECRI leading index’s growth rate increased from 0.4% to 1.1%. The ECRI index is from the week of November 15th, while the Conference Board index is from October. The ECRI index increased from 146.2 to 147 which means the growth rate increase wasn’t just because of comps. I see its growth rate getting above 5% by the end of the year.

Even though the housing starts report only increased the Atlanta Fed Nowcast 0.1% to 0.4%, the report increased the NY Fed’s Nowcast 0.27%. Nowcast’s prediction increased from 0.39% to 0.71% which is basically where it was 2 weeks ago. I see growth coming in about 1% higher. There are 10 more weekly updates of this index before the Q4 GDP report comes out. The usually bullish St. Louis Fed Nowcast is near my estimate as it sees growth being 1.57%.


Housing data has been solid this week. This includes MBA purchase applications, permits, starts, and existing sales. Surprisingly, the Markit PMI improved which is great news for those calling for growth to increase in 2020. Remember, the Markit report has a bigger sample size than the ISM report. 

CRI leading index’s growth rate increased, but it’s still not predicting a very strong 1H 2020. Nowcasts increased modestly because of this week’s data. But 2 out of 3 of them see growth coming in below 1% which I think is too bearish. 

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