Peter: The euphoria is cooling for a large swath of the US economy
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The ISM services index for March moderated to 55.2 from 57.6 in February and is below the estimate of 57.0. It’s now at the lowest level since October when it was at 54.6 just before the election. New orders fell 2.3 pts to 58.9, the lowest since November and not much different than the October print of 57.7 and below the one in September at 59.6. Backlogs fell 1 pt to 53 but after rising by 4 pts last month. Employment was disappointing as it fell by 3.6 pts to 51.6, the lowest since August. As stated this morning, the service sector job gains in the first 3 months of this year according to ADP is at the same run rate as seen in 2016. Export orders jumped by 5.5 pts to 62.5, the highest since May ’07 but only 11 of 18 industries have them. That said, it could be a nice tell on the better economies overseas. Prices paid fell 4.2 pts to 53.5, the lowest since September and which is two months removed from the highest since 2014. Of the 18 industries surveyed, 15 saw growth vs 16 in February. The three that saw contraction was in Information; Educational Services; and Professional, Scientific & Technical Services.
The ISM did point to government unknown’s as the key reason for the decline m/o/m. They said “The sector continues to reflect growth; however, the rate of growth has declined since last month. The majority of respondents’ comments indicate a positive outlook on business conditions and the overall economy. There were several comments about the uncertainty of future government policies on health care, trade and immigration, and the potential impact on business.” As for the soft employment component, just 9 of the 18 industries surveyed are increasing payrolls vs 11 in February. Six industries shed workers vs 4 in the month prior. The pace of private sector job gains according to ADP in the first 3 months of 2017 is down a hair from the average in 2016.
Bottom line, as the markets are ripping higher on the data today, it seems to be only in response to the weather induced pick up in construction workers and a nice increase in manufacturing jobs. The 80%+ of the economy that is services has more mixed news today. As seen in ISM, confidence is still high but it’s clearly cooled since the post election driven euphoria.
Markit also reported its version of services and its index fell 1 pt to 52.8, the weakest since September when it printed 52.3 and vs 54.8 right before the election. They also confirmed the weaker services hiring that ISM did as their index fell to the lowest since October. Markit said “the loss of momentum is linked to weaker inflows of new work, with the surveys providing some evidence that demand is being dented in part by higher prices.”