The October ISM services index fell to 54.4, the weakest since May 2020 from 56.7 in September and that was about one point below the estimate of 55.3. New orders declined by 4.1 pts to 56.5, a 4 month low while backlogs fell by a slight .3 pts to 52.2, just off the lowest since March 2021. Inventories lifted by 3.1 pts to a still below 50 read of 47.2. Supplier constraints rose after the recent decline and prices paid bounced back by 2 pts to a still high 70.7. Of note ahead of tomorrow’s payroll number was the Employment component which dropped back below 50 at 49.1, down 3.9 pts m/o/m. Also notable was the 17.4 pt plunge in export orders to 47.7 with the only caveat that only a few service companies export (23%).
While the headline figure fell, the breadth was slightly better as 16 industries saw growth of the 18 surveyed vs 15 in September.
The ISM’s bottom line, “Based on comments from Business Survey Committee respondents, growth rates and business levels have cooled. There are still challenges in hiring qualified workers, and due to uncertainty regarding economic conditions, some companies are holding off on backfilling open positions. Supply chain and logistical issues persist but are not as encumbering as they were earlier in the year.”
You do not have a full picture of US services unless you also hear about the S&P Global services PMI which is below 50 for four straight months at 47.8. The difference between the two surveys is S&P Global includes more small and medium sized businesses AND does not include ag, mining, utilities, construction, wholesale, retail and government administration (ht Quill Intelligence) that ISM does. For the manufacturing and services composite PMI, it is now also below 50 for 4 straight months so at least according to this survey, the US economy is contracting.
S&P Global said “Demand conditions were hampered by tighter financial conditions and elevated rates of inflation, leading to reports of postponements and the delayed placement of orders as customers assess their spending. Subdued demand and weaker confidence in the outlook for output led to a near-stagnation in employment. Reports of the non-replacement of voluntary leavers brought signs that firms were evaluating costs and future demand more closely before advertising vacancies and expanding staffing levels.”
The positive was the moderation on the inflation side, “Hikes in costs softened, as service providers and manufacturers saw slower upticks in supplier and input prices. Meanwhile, private sector firms sought to boost demand through a slower increase in selling prices.” This said, “Business confidence across the service sector weakened in October. The outlook for output over the coming year was dampened by concerns regarding inflation and greater customer hesitancy. The degree of optimism remained below the series average and was the lowest since September 2020.”
The 10 yr Treasury yield has been falling off its morning highs but certainly still up on the day. The dollar strength is also coming off its early morning highs.
ISM Services
S&P Global Services PMI
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.