The November ISM services index rose to 56.5 from 54.4 in October and that was also 3 pts better than expected. It compares with 56.7 in September. The internals though were pretty mixed. New orders fell .5 pt to 56 and that is a 5 month low and backlogs were down by .4 pts to 51.8, the weakest since March 2021. Inventories rose to a 6 month high but are still below 50 at 47.9. Export orders (only some service company’s report them) plunged by almost 10 pts to just 38.4. Employment rose 2.4 pts to back above 50 at 51.5 after falling by 4 pts last month. Supplier constraints eased while prices paid fell a touch to a still very high 70.
While the headline ISM rose, the breadth weakened as 13 industries saw growth vs 16 in October and 15 in September.
The ISM said in a bottom line, “increased capacity and shorter lead times have resulted in a continued improvement in supply chain and logistics performance. A new fiscal period and the holiday season have contributed to stronger business activity and increased employment.” They didn’t mention the drop in new orders and backlogs but keeping the ISM services index elevated relative to the S&P Global services PMI is the latter’s exclusion of mining, ag, utilities, and government administration but also takes out construction, wholesale and retail trade too that S&P Global does not.
In stark contrast, and not including those sectors mentioned above as stated and also including many more small and medium sized businesses, the S&P Global services PMI fell to 46.2 in November from 47.8 and under 50 for a 5th straight month. They said the fall in output was the 2nd sharpest since May 2020. “Contributing to the decline was a steeper decrease in new orders, as domestic and foreign client demand remained weak. Efforts to entice customer spending were reflected in the slowest rise in output charges since October 2020.” Input prices continued to fall too. New orders and backlogs fell too while employment rose “marginally.” Export orders fell at the steepest pace in 2 ½ years.
Business confidence about the future did pick up on “hopes of greater client demand and lower rates of inflation over the coming year” but “The degree of confidence was below the series trend, however, as firms remained concerned regarding cost pressures, the economic outlook, rising interest rates and customer hesitancy.”
Hearing the conclusion from the chief economist of S&P Global sounds like you’re living in a different country when compared to what the ISM said, “The survey data are providing a timely signal that the health of the US economy is deteriorating at a marked rate, with malaise spreading across the economy to encompass both manufacturing and services in November.” Based on the current levels of each, S&P Global said it is consistent with “the US economy contracting in the fourth quarter at an annualized rate of approximately 1%, with the decline gathering momentum as we head towards the end of the year.”
They also highlighted the discounting they are seeing “in order to help stimulate sales, which augers well for inflation to continue to retrench in the coming months, potentially quite significantly.”
ISM Services
S&P Global Services
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.