America’s services sector is showing signs of weakness as evidenced by two key data releases. First, Markit’s flash services purchasing manager’s index (PMI) which measures business conditions in the services sector came in at 49.8 for February. The below-50 reading suggests that the largest component of US GDP is in contraction and sees it join the manufacturing sector which has been in contraction for several months.

Next, the ISM non-manufacturing composite came in at a 2 year low of 53.4, again suggesting that the pace of growth in service sector business activity is slowing.

“This is not what investors will want to hear especially when Federal Reserve officials are still making all the wrong noises about forthcoming interest rate hikes,” said Harry Coolidge, a senior economist at Mizuho Corporate Global.

“There’s a distinct pattern emerging in the PMI data and this is the 3rd consecutive month that business activity has slowed. We think there’s worse to come.”

Markit’s data release appeared to attribute the dip in activity to the severe storm on America’s East Coast that dumped record levels of snow on key cities in the third week of January but Mizuho Corporate Global was skeptical.

“America’s winter has been quite benign this year compared with the last two. Hiding behind one weekend of snow, however severe, is disingenuous. This is structural and not rooted in weather at all,” noted Coolidge.

Investors are awaiting the latest nonfarm payrolls data due Friday which could provide evidence that the slowdown could be manifesting itself in declining job creation.

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